Hearings  Before  a  Sub-Committee  of  the 

Committee  on  Naval  Affairs,  United 

States  Senate,  Under  Senate 

Resolution  291. 


STATEMENT  OF 

FAIRFAX  HARRISON 

<i 

ON  BEHALF  OF 

SOUTHERN  RAILWAY  COMPANY 


JULY  27,  1914 


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SOUTHERN  RAILWAY  COMPANY. 

OFFICE  OF  THE  PRESIDENT. 

WASHINGTON,  D.  C,  July  28,  1914. 

Sir: 

As  the  management  of  Southern  Railway  Company  relies  largely 
for  its  success  in  meeting  its  problems  and  fulfilling  the  expectations  of 
the  public  upon  the  justification  by  public  opinion  in  the  South  of  the 
ideals  and  the  purposes  which  actuate  what  it  does,  I  have  deemed  that 
our  reply  to  certain  charges  brought  against  us  by  Mr.  Benjamin  L. 
Dulaney,  of  Bristol,  Va.,  which  have  been  widely  disseminated  in  the 
public  press,  might  be  of  interest  to  you. 

Accordingly,  I  send  you  herewith  a  transcript  of  Senator  Tillman's 
resolution  under  which  the  Senate  Committee  on  Naval  Affairs  has  re- 
cently been  considering  those  charges,  and  of  so  much  of  the  evidence  as 
contains  my  defense  of  Southern  Railway  Company. 

I  venture  to  hope  that  you  may  find  time  to  read  these  papers. 
Faithfully  yours, 

FAIRFAX  HARRISON, 

President. 


.*:•':••'••':: 

••*•*•*      • 


•  •  • 

! « *  * 

I*  *  » 


63o  CONGRESS, 

^      ,--, 

2o  SESSION. 


IN  THE  SENATE  OF  THE  UNITED  STATES. 
MARCH  10,  1914. 

Mr.  TILLMAN  submitted  the  following  resolution;  which  was  referred 
to  the  Committee  en  Naval  Affairs. 

APRIL  28,  1914. 

Reported  by  Mr.  TILLMAN,  with  an  amendment,  and  referred  to  the 
Committee  to  Audit  and  Control  the  Contingent  Expenses  of  the 
Senate. 

MAY  8,  1914. 

Reported  by  Mr.  WILLIAMS,  with  amendments,  considered,  amended,  and 

agreed  to. 


RESOLUTION. 

Whereas  in  view  of  the  early  completion  of  the  Isthmian  Canal  and  of 
its  importance  to  the  United  States  Navy  and  the  national  defense 
generally,  and  to  the  development  of  trade  with  Central  and  South 
American  countries,  the  establishment  of  adequate  coal-supplying 
facilities  south  of  Cape  Hatteras  is  deemed  imperative;  and 

Whereas  the  usefulness  and  efficiency  of  any  harbor  as  a  coaling  station 
must  depend  upon  the  facilities  (first)  of  the  coal  producers  for 
reaching  it  and  (second)  of  the  coal  carriers  in  the  matter  of  assem- 
bling the  product  at  said  port,  including  coal  docks  and  other  facili- 
ties for  loading  and  handling,  which  should  be  accessible  to  all 
shippers  and  carriers  alike  on  the  same  terms  and  conditions ;  and 

Whereas  it  appears  from  numerous  complaints  now  before  the  Inter- 
state Commerce  Commission,  as  well  as  from  other  sources,  that  the 
power  and  influence  of  the  so-called  Coal  Trust  is  being  persistently 

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used  through  the  management  of  the  railroads  reaching  South  At- 
lantic ports  to  prevent  the  free  movement  of  coal  not  belonging  to 
said  Coal  Trust,  and  it  is  alleged  that  practically  all  of  such  roads 
are  actually  dominated  by  the  same  financial  interests  that  control 
the  great  coal  combines  finding  outlet  chiefly  through  New  York 
Harbor,  Philadelphia,  and  the  Chesapeake  Bay  ports:  Now,  there- 
fore, be  it 

Resolved,  that  the  Committee  on  Naval  Affairs  be,  and  it  is  hereby, 
authorized  and  instructed  to  investigate  the  natural  and  strategic  advan- 
tages for  naval  purposes  of  ports  south  of  Hatteras  as  compared  with 
Norfolk  and  other  Chesapeake  Bay  ports  as  a  permanent  point  for  coal 
distribution,  and  included  and  embraced  in  the  scope  of  said  investigation 
the  said  committee  is  further  authorized  and  instructed  to  investigate 
into  the  character  and  proximity  of  the  coal  supply,  and  the  rates  obtain- 
able on  coal  from  the  coal  fields  near  by;  and  the  committee  is  further 
instructed  to  ascertain  as  far  as  it  is  practicable — 

First.  What  quantity  of  bituminous  coal  is  consumed  or  used  at 
Charleston,  Savannah,  Brunswick,  Fernandina,  and  Jacksonville,  and  in 
their  vicinities,  and  what  proportion  of  this  coal  is  supplied  from  mines 
located  on  the  Pennsylvania  Railroad  system,  including  the  Baltimore 
and  Ohio,  Norfolk  and  Western,  and  Chesapeake  and  Ohio,  and  what 
proportion  is  supplied  by  mines  on  the  Southern  Railway. 

Second.  Whether  the  United  States  Navy,  including  the  naval  sta- 
tions, now  pays  a  higher  freight  rate  for  coal  supply  at  any  or  all 
Atlantic  seaports  than  is  charged  to  commercial  ships  for  bunkerage  or 
for  coastwise  distribution;  and  whether  all  coal  for  naval  supply,  at  the 
Atlantic  seaports,  is  not  supplied  by  the  so-called  Coal  Trust;  that  is, 
by  the  mines  that  have  a  common  ownership  or  control  with  the  coal 
carriers;  and  whether  present  conditions  prevent  competitive  bidding 
for  the  United  States  Navy  coal  supply,  or  any  part  thereof,  by  inde- 
pendent coal  operators. 

Third.  The  mileage  from  mine  groups  located  on  the  Southern  Rail- 
way in  Virginia,  Kentucky,  Tennessee,  Georgia,  and  Alabama  to  Wil- 
mington, Charleston,  Savannah,  Brunswick,  Fernandina,  and  Jackson- 
ville; and  the  mileage  to  these  same  ports,  the  way  the  coal  is  moved 
from  the  mines  on  the  Pennsylvania  Railroad  system  and  on  the  Balti- 
more and  Ohio,  Norfolk  and  Western,  and  Chesapeake  and  Ohio  rail- 
roads and  all  connecting  lines  in  West  Virginia;  and  in  all  cases  show 
the  freight  rates  on  coals  to  the  cities  named,  both  by  rail  and  rail  and 
water ;  and  where  two  or  more  carriers  participate,  ascertain  the  propor- 
tion of  the  rate  (or  service  charge)  each  receives;  and  also  compare 
these  rates  with  those  at  seaport  towns  and  cities  from  Norfolk  to  New 
York  for  local  use,  for  tidewater  shipment,  and  for  naval  use. 

Fourth.  Why  the  Southern  Railway  has  built  no  wharves  or  made  no 
provision  for  handling  tidewater  coal  at  any  of  the  South  Atlantic  ports, 
and  whether  the  riparian  rights  and  water  frontage  of  South  Atlantic 
harbors  is  not  now  being  bought  up  by  the  parties  in  the  interest  of  the 
Coal  Trust,  while  the  Southern  Railway  is  taking  no  active  steps  to  build 
for  itself  an  independent  outlet. 


Fifth.  Whether  trustees  for  the  stockholders  and  members  of  the 
board  of  directors  of  the  Southern  Railway  are  financially  interested  in 
coal-mining  industries  on  the  Pennsylvania  Railroad  system,  the  Balti- 
more and  Ohio,  the  Norfolk  and  Western,  or  the  Chesapeake  and  Ohio, 
and  to  what  extent;  and  whether  they,  or  any  of  them,  are  financially 
interested  in  any  coal-mining  industries  tributary  to  any  of  said  rail- 
ways. And  if  found  to  be  interested,  ascertain  whether  such  mines  have 
been  allowed  preference  or  advantages  not  allowed  to  all  other  shippers 
(shown  by  cases  already  decided  by  the  Interstate  Commerce  Commis- 
sion or  State  commissions).  And  in  all  coal-mining  operations  tributary 
to  the  Southern  Railway  in  which  any  director  of  the  Southern  Rail- 
way or  director  of  any  railroad  controlled  by  it,  or  allied  with  the 
Southern  Railway,  is  financially  interested,  ascertain  the  division  of 
through  rates  with  other  railroads,  and  in  all  cases  where  a  coal  opera- 
tion tributary  to  the  Southern  Railway  controls  a  local  railroad,  or  when 
such  local  railroad  is  controlled  in  common  with  a  coal  operation,  for 
assembling  and  distributing  its  own  coal,  ascertain  just  what  proportion 
of  rates  it  receives,  if  any,  from  the  carriers,  or  what  compensation  other 
than  a  division  of  the  rates  it  may  receive. 

Sixth.  Whether  the  rate  making  for  the  Southern  Railway,  or  other 
southern  carriers  of  coal,  is  dominated  by  the  Pennsylvania  Railroad  or 
Norfolk  and  Western;  or  whether  the  freight  rates  of  the  Southern 
Railway  and  any  of  the  other  southern  coal  carriers  are  made  and  fixed 
and  maintained  by  the  traffic  men  of  the  Southern  Railway  and  other 
southern  carriers;  or  whether  the  Pennsylvania  Railroad,  the  Norfolk 
and  Western  Railway,  the  Baltimore  and  Ohio,  and  Chesapeake  and 
Ohio,  exercise  any  influence  either  through  a  rate-making  or  traffic 
association  or  otherwise,  in  the  matter  of  making  the  rates  for  the  South- 
ern Railway  and  other  southern  carriers. 

Seventh.  Whether  or  not  there  is  any  discrimination  now  existing 
in  favor  of  any  one  port  on  the  Atlantic  seaboard  as  against  another 
port,  and,  if  so,  in  what  does  such  discrimination  consist;  and  whether 
or  not  any  coal  trust  or  combination  of  railroads  and  coal  companies 
control  the  coal  tonnage  to  any  port  or  ports;  and,  if  so,  how;  and 
whether  or  not  the  coal  supply  of  West  Virginia,  Virginia,  Pennsyl- 
vania, Tennessee,  and  Kentucky  flows  naturally  and  without  unnecessary 
obstruction  to  their  respective  natural  ports  upon  the  Atlantic  seaboard; 
and  whether  or  not  there  is  any  discrimination  in  rates  against  any  coal 
operators. 

Eighth.  The  coal  rates  to  thirty  or  more  representative  cities  on 
the  Southern  Railway  in  Virginia,  North  Carolina,  South  Carolina, 
Georgia,  and  Florida,  and  compare  these  rates  with  the  rates  enjoyed 
by  the  cities  of  relative  importance  and  location,  with  regard  to  mines, 
in  Pennsylvania,  Ohio,  Indiana,  and  Michigan  on  the  Pennsylvania  Rail- 
road system,  including  the  cities  whose  rates  are  compared  in  the  letter 
read  into  the  Congressional  Record  by  Senator  Tillman  on  April  eighth. 

Ninth.  What  actual  ownership  each  director  of  the  Southern  Rail- 
way Company  has  in  that  company,  and  what  ownership,  if  any,  is  held 
in  it  by  the  individuals  composing  the  trustees  for  the  stockholders. 


Said  Committee  on  Naval  Affairs  is  authorized  to  sit  during  the 
sessions  of  the  Senate  and  during  any  recess  of  Congress,  and  its  hear- 
ings shall  be  open  to  the  public,  and  it  is  authorized  and  empowered  to 
employ  coal  experts,  railroad  rate  experts,  and  to  employ  a  stenographer 
at  a  price  not  to  exceed  $1  per  printed  page.  Said  committee  shall  have 
power  to  compel  witnesses  to  testify,  to  send  for  persons  and  papers, 
to  administer  oaths  to  witnesses,  and  do  anything  necessary  to  arrive  at 
all  the  facts. 

The  expenses  incident  to  the  investigation  herein  authorized  shall 
not  exceed  $5,000,  and  shall  be  paid  out  of  the  contingent  fund  of  the 
Senate  upon  vouchers  signed  by  the  chairman  of  the  Committee  on  Naval 
Affairs  and  approved  by  the  Committee  to  Audit  and  Control  the  Con- 
tingent Expenses  of  the  Senate.  The  said  Committee  on  Naval  Affairs 
may,  in  its  discretion,  conduct  this  investigation  by  a  subcommittee 
of  not  less  than  five  members,  to  be  appointed  by  the  chairman,  and  shall 
make  its  report  as  soon  as  possible. 


HEARING  BEFORE  A  SUB-COMMITTEE  OF  THE  SENATE: 
COMMITTEE  ON  NAVAL  AFFAIRS. 

WASHINGTON,  D.  C,  Monday,  July  20,  1914. 

The  Committee  met  at  10  o'clock  a.m. 

Present:  Senators  Nathan  L.  Bryan  (Chairman),  William  Alden 
Smith  and  Miles  Poindexter. 

The  Chairman :  This  meeting  is  called  to  consider  Senate  Resolution 
number  291,  introduced  by  Senator  Tillman,  of  South  Carolina,  and 
the  sub-committee  will  proceed  with  the  hearing,  taking  up  first  the  con- 
sideration of  the  charges  made  in  the  resolution. 

Senator  Tillman,  do  you  desire  to  make  a  statement? 

Senator  Tillman:  Mr.  Chairman,  I  feel  that  I  ought  to  make  an 
explanation  of  how  that  resolution  came  to  be  introduced.  Mr.  B.  L. 
Dulaney,  who  will  be  the  first  witness,  came  to  see  me  some  time  last 
winter  and  in  talking  over  the  coal  situation  I  found  him  the  best  in- 
formed man  I  had  ever  met  on  that  subject.  Mr.  Dulaney  opened  up 
what  I  conceive  to  be  so  important  a  factor  in  the  price  of  coal,  in  our 
State  especially,  as  well  as  in  the  whole  South  Atlantic  Coast,  that  1 
believed  it  my  duty  to  try  to  find  out  if  the  conditions  could  not  be 
remedied.  After  consulting  with  some  of  my  colleagues  on  the  Naval 
Committee,  you  among  others,  I  introduced  this  resolution  which  the 
Senate  passed.  Mr.  Dulaney  is,  in  a  way,  the  prosecutor  in  this  case 
and  Mr.  Fairfax  Harrison,  President  of  the  Southern  Railway,  by  his 
letter  to  me,  showing  the  attitude  of  the  Southern  Railway  in  this  case, 
is  the  defendant.  Both  of  these  gentlemen,  I  presume,  will  testify  before 
the  hearing  is  over.  I  thought  it  due  Mr.  Dulaney  that  the  people  should 
understand  who  started  the  investigation  and  that  he  ought  to  get  most 
credit  for  whatever  it  brought  to  light. 

The  Chairman :  At  this  stage  of  the  proceeding  we  will  have  copied 
into  the  record  the  letter  from  Mr.  Dulaney  to  Senator  Tillman  and  the 
letter  to  Senator  Tillman  from  Mr.  Harrison,  President  of  the  Southern 
Railway  Company. 

The  letter  from  Mr.  Dulaney  to  Senator  Tillman  is  in  the  words 
and  figures  following: 

"March  25,  1914. 
Senator  B.  R.  Tillman, 

Washington,  D.  C. 

Dear  Sir:  The  most  important  question  to  the  industrial  world 
is  transportation.  By  the  control  of  the  transportation  of  this  coun- 
try one  can  build  up  or  break  down  any  section  regardless  of  its  nat- 
ural advantages.  It  is  well  known  that  the  transportation  of  this 
country  is  controlled  by  a  small  group  of  financiers,  mainly  in  New 
York.  But  while  they  control  the  transportation  of  the  whole  country, 
their  ownership  of  industrial  enterprises  is  limited  to  certain  parts 
of  the  country,  as,  for  example,  the  coal  industry  of  Pennsylvania 
and  some  other  sections ;  and  hence  the  flagrant  abuses  in  the  prac- 


8 

tices  of  rate  making  to  favor  their  own  coal  and  to  destroy  the 
independent  coal  mines. 

*  In  the  matter  of  coal  freight  rates,  I  think  the  most  abused 
States  in  the  Union  are  North  Carolina,  South  Carolina,  Georgia, 
Florida  and  a  portion  of  Virginia.  The  industrial  progress  of  these 
States  has  been  in  spite  of  the  high  cost  of  fuel  transportation 
and  it  ought  to  be  clear  to  every  one  of  intelligence  that  general 
manufacturing  can  not  prosper  until  transportation  conditions  have 
been  corrected.  By  an  examination  of  the  rate  sheets,  open  to  all, 
it  will  be  seen  that  the  average  manufacturer  located  on  the  Penn- 
sylvania System,  for  example,  pays  from  30  to  60  per  cent  less 
freight  on  fuel  than  is  paid  by  the  average  manufacturer  on  the 
Southern  Railway — that  is,  for  haulage  for  equal  distance.  For 
example : 

Compare  rates  to  Columbus,  Ohio,  with  rates  to  Columbia,  S.  C, : 

Miles.         Rates. 

To  Columbus  from  Pocahontas 334          $1.15 

To  Columbia  from   Appalachia 318  2.25 

Compare  rates  to  Toledo,  Ohio,  with  rates  to  Savannah,  Ga. : 

Miles.         Rates. 

To  Toledo  from  Pocahontas 456          $1.45 

To  Savannah  from  Appalachia 471  2.10 

Compare  rates  to  Cincinnati,  Ohio,  with  rates  to  Lynchburg,  Va. : 

Miles.         Rates. 

To  Cincinnati   from  Pocahontas 340          $1.10 

To  Lynchburg   from   Pocahontas 169  1.50 

Compare  rates  to   Cleveland,   Ohio,   with   rates  to   Charleston, 
S.  C: 

Miles.         Rates. 

To  Cleveland  from  Pocahontas 472          $1.35 

To  Charleston,  S.  C.,  from  Appalachia 447  2.05 

Compare  rates  to  Dayton,  Ohio,  with  rates  to  Winston-Salem, 
N.  C: 

Miles.         Rates. 

To  Dayton  from  Pocahontas 364          $1.35 

To  Winston-Salem  from  Pocahontas 239  2.10 

Compare  rates  to  Indianapolis,  Ind.,  with  rates  to  Augusta,  Ga. : 

Miles.         Rates. 

To  Indianapolis   from   Pocahontas 449          $1.65 

To  Augusta  from  Appalachia 401  2.20 

Compare  rates  to  Detroit,  Mich.,  with  rates  to  Charlotte,  N.  C. : 

Miles.         Rates. 

To  Detroit  from  Pocahontas 505  $1.60 

To  Charlotte  from  Appalachia 305  2.25 


Where  there  are  two  or  more  routes  the  short  mileage  is  used. 

The  evident  purpose  of  these  high  rates,  especially  to  the  coast 
towns  and  cities,  is  not  to  raise  revenue  for  the  Southern  Railway, 
but  to  prohibit  the  movement  of  coal  by  it  from  the  mines  on  its  own 
rails  to  tidewater,  for  if  the  independent  coal  shippers  had  access  to 
tidewater  with  proper  coal-loading  facilities  there  would  be  compe- 
tition with  the  Coal  Trust  from  Florida  to  Maine  as  well  as  in  the 
export  business;  and,  moreover,  the  coast  towns  and  cities  from 
Charleston  to  Tampa  are  forced  to  buy  much  of  their  coal  from  the 
Coal  Trust  from  mines  a  thousand  miles  away,  and  thus  several 
millions  of  dollars  are  annually  sent  away,  and  the  Southern  Rail- 
way is  robbed  of  its  natural  rights  to  haul  the  coal  and  is  thus  used 
by  its  directors  to  obstruct  development  in  the  territory  that  sup- 
ports and  protects  it.  These  things  are  wrong,  and  such  practices  in 
rate  making  are  unfair  and  without  justification  from  any  point  of 
view.  The  Southern  Railway  is  a  splendid  property,  and  if  it  were 
run  in  its  own  interest  and  for  the  development  and  benefit  of  the 
territory  in  which  it  is  located  there  is  no  just  reason  why  every 
seaport  from  Jacksonville  to  Norfolk  should  not  have  as  low  tide- 
water rates  as  are  now  enjoyed  in  the  domain  of  the  Coal  Trust  at 
the  seaports  from  Norfolk  to  New  York,  for  it  has  its  own  rails 
reaching  directly  from  the  coal  mines  in  Virginia,  Kentucky,  Ten- 
nessee, and  Alabama  directly  to  Norfolk,  Charleston,  Brunswick,  and 
Jacksonville. 

I  believe  that  it  is  a  conservative  estimate  to  say  that  the  mines 
from  Virginia  to  Alabama  reached  directly  by  the  Southern  Railway 
could  furnish  now  at  the  rate  of  10,000,000  tons  per  annum  for  tide- 
water business,  and  this  tonnage  could  be  increased  at  an  enormous 
annual  rate  if  the  operators  were  only  certain  of  their  position.  This 
would  increase  the  gross  revenues  of  the  Southern  Railway  by 
$14,000,000,  assuming  that  the  tidewater  rate  of  $1.40  would  be  put  in, 
and  when  you  add  to  the  freight  item  the  value  of  the  coal  itself,  at 
a  low  estimate,  the  amount  would  be  $25,000,000  annually  that  would 
remain  in  the  territory  served  by  the  Southern  Railway,  and  this 
total  should  increase  annually  for  many  years  to  come  if  the 
Southern  Railway  has  a  square  deal.  The  average  distance  from 
mines  on  the  Southern  Railway  to  tidewater  is  practically  the  same 
as  from  the  mines  on  the  Norfolk  &  Western  Railway  and  the  Chesa- 
peake &  Ohio  Railroad  to  tidewater,  and  the  two  latter  roads  have 
grown  rich  and  powerful  by  the  movement  of  coal  at  rates  low 
enough  to  assure  the  movement  of  coal,  and  there  is  simply  no 
good  reason  why  the  Southern  Railway  should  not  do  likewise,  but 
this  road,  as  is  well  known,  is  controlled  by  the  same  financiers  who 
control  the  big  coal  interests  known  as  the  Coal  Trust,  and  some  of 
them  were  identified  with  the  recent  scandal  in  connection  with  the 
New  York,  New  Haven  &  Hartford  Railroad,  and  it  is  claimed 
that  they  control  practically  every  railroad  in  the  South. 

I  allege  with  emphasis  that,  in  addition  to  the  wrongs  above 
recited  against,  the  southern  country,  not  only  the  Southern  Railway, 


10 

but  the  Norfolk  &  Western  Railway  as  well  are  being  used  to  de- 
stroy private  interests,  specifically  some  of  the  independent  coal 
properties  in  the  territory,  and  I  believe  that  an  honest  investigation 
will  prove  this  statement  beyond  the  shadow  of  a  doubt.  For  many 
years  I  have  been  engaged  in  development  work  in  that  territory 
and  have  had  a  good  deal  of  experience  in  dealing  with  some  of 
these  financiers  who  control  the  Southern  Railway.  Some  of  their 
valuable  properties  are  those  which  I  developed  and  which  they 
obtained  by  methods  that  I  think  should  put  to  shame  an  ordinary 
train  robber  or  a  bandit.  I  am  now  responsible  for  an  investment 
of  probably  $5,000,000  in  what  is  known  as  the  Black  Mountain  coal 
field,  which  is  literally  held  up  and  refused  an  outlet  for  its  product, 
though  reached  directly  by  the  Southern  Railway,  the  Louisville  & 
Nashville  Railroad,  and  is  within  a  few  miles  of  the  Norfolk  & 
Western  Railway.  The  investment  and  the  development  in  this  field 
were  induced  largely  by  the  promises  made  by  the  Southern  Railway 
to  give  an  outlet  at  Charleston,  and  though  the  Southern  has  had  its 
line  completed  from  the  coal  mines  to  Charleston  for  10  years,  no 
outlet  has  been  provided. 

I  believe  a  thorough  investigation  by  a  Senate  committee  will 
show  that  the  Southern  Railway  has  been  the  dumping  ground  for 
the  sale  of  other  railroads  at  unreasonable  profits  by  the  friends  or 
business  associates  of  some  of  the  directors.  I  have  personal  knowl- 
edge of  the  sale  of  the  Virginia  and  Southwestern  Railway  by  Henry 
K.  McHarg  at  practically  six  times  what  it  cost  him  or  his  company, 
when  the  Southern  Railway  could,  just  as  well  have  bought  it  directly 
and  saved  the  five  millions.  I  believe  that  an  investigation  will  show 
that  such  transactions,  amounting  to  probably  $50,000,000  or  more, 
have  taken  place  since  the  control  by  the  present  financiers. 

I  believe  that  a  thorough  investigation  will  show  that  the  ab- 
normally high  local  rates  throughout  the  Southern  territory  are 
due  in  a  large  measure  to  the  need  of  revenues  to  meet  such  pur- 
chases and  to  the  inflation  of  capital  and  bond  issues  caused  thereby. 

I  believe  that  an  investigation  will  show  the  existence  of  a 
secret  rate-making  association,  and  that  all  important  freight  rates 
in  the  territory  in  question  are  dominated  by  the  Pennsylvania  Rail- 
road greatly  to  the  detriment  of  all  the  other  railroads  involved  and 
unfair  to  the  country  they  traverse. 

I  believe  that  an  investigation  properly  conducted  will  show  that 
the  men  who  control  the  Southern  Railway  have  practically  no  in- 
vestment either  in  the  Southern  Railway  or  in  the  territory  served 
t>y  it,  except  in  a  small  portion  of  Virginia  and  Alabama. 

In  the  matter  of  handling  the  several  bond  issues  of  the  rail- 
way and  the  short  loans  these  men,  as  is  well  known,  have  been  on 
"both  sides  of  the  transaction.  I  believe  that  this  investigation  should 
be  made  in  the  interest  of  the  security  holders,  as  well  as  in  the 
interest  of  the  railroad  itself,  and  particularly  in  the  interest  of  the 
territory  which  the  railroad  serves. 

In  conclusion,  let  me  say  that  these  conditions  have  taken  shape 
and  grown  from  bad  to  worse  under  the  very  eyes  of  the  Interstate 


11 

Commerce  Commission,  and  hence  I  suppose  that  body  is  powerless 
to  give  relief,  and  therefore  I  earnestly  urge  you  not  to  favor  a 
reference  of  the  Tillman  resolution  to  the  Interstate  Commerce 
Commission. 

Very  truly  yours, 

B.    L.    DULANEY." 

The  letter  addressed  to  Senator  Tillman  by  Fairfax  Harrison, 
President  of  the  Southern  Railway  Company,  is  in  the  words  and  figures 
as  follows: 

"SOUTHERN  RAILWAY  Co., 

Office  of  the  President, 
1300  Pennsylvania  Avenue,  Washington,  D.  C, 

April  16,  1914. 
The  Hon.  Benjamin  R.  Tillman, 

United  States  Senate,  Washington,  D.  C. 
Dear  Sir :  My  attention  has  been  called  to  a  letter  written  to  you 
by  Mr.  B.  L.  Dulaney,  under  date  of  March  25,  1914,  and  published 
in  the  Congressional  Record  of  April  8,  1914. 

This  letter  contains  serious  charges  against  the  management  of 
this  company.  They  have  been  made  on  the  floor  of  the  Senate 
and  have  become  a  part  of  its  record. 

If  they  are  true,  the  management  of  this  company  ought  to  be 
exposed. 

If  they  are  false,  their  author  ought  to  be  exposed. 
I  ask,  on  behalf  of  the  Southern  Railway  Co.,  an  opportunity 
to  refute  them,  and,  to  that  end,  that  a  speedy  and  thorough  inves- 
tigation be  ordered  and  the  results  given  as  wide  publicity  as  the 
charges. 

Faithfully  yours, 

FAIRFAX  HARRISON,  President." 


12 

MONDAY,  JULY  27,  1914. 

SUBCOMMITTEE  ON  NAVAL  AFFAIRS, 

UNITED  STATES  SENATE, 

Washington,  D.  C. 

The  subcommittee  met,  pursuant  to  adjournment,  at  10  o'clock 
a.  m. 

Present:  Senators  Nathan  P.  Bryan  (chairman)  and  William  E. 
Chilton. 

Present,  also:  Senator  Tillman. 

TESTIMONY    OF    MR.    FAIRFAX    HARRISON,    PRESIDENT, 
SOUTHERN   RAILWAY   CO.,   WASHINGTON,   D.   C. 

(The  witness  was  duly  sworn  by  the  chairman.) 

Mr.  Thorn:  Mr.  Harrison,  are  you  president  of  the  Southern  Rail- 
way Co.? 

Mr.  Harrison:  I  am. 

Mr.  Thorn :  How  long  have  you  held  that  position? 

Mr.  Harrison:  Since  December  1,  1913. 

Mr.  Thorn:  Please  tell  the  committee  your  previous  relationship 
with  the  company,  your  knowledge  of  its  history,  and  its  development, 
and  its  policies. 

Mr.  Harrison:  I  have  been  in  the  service  of  the  Southern  Railway 
Co.  for  18  years.  I  entered  the  service' in  May,  1896,  as  a  junior  officer 
of  the  law  department,  having  to  do  with  the  routine  matters  of  the  law 
department.  Mr.  Samuel  Spencer  was  then  president  of  the  company, 
as  he  had  been  since  its  organization  in  1894,  and  he  from  time  to  time 
gave  me  work  to  do  in  immediate  relation  with  him. 

It  was  during  the  period  of  the  expansion  of  the  system,  when  Mr. 
Spencer  was  making  the  map  of  the  Southern  and  buying  a  great  many 
railroads.  I  came  into  closer  and  closer  relation  with  Mr.  Spencer  in 
that  work  in  carrying  out  his  policies.  In  1903  he  made  me  assistant  to 
the  president,  to  work  immediately  with  him  and  with  Mr.  Finley,  who 
was  then  second  vice-president,  in  charge  of  the  property. 

On  Mr.  Spencer's  death  in  1906,  Mr.  Finley  made  me  one  of  the 
vice-presidents  of  the  company  and  put  me  in  charge  of  its  finances 
because  of  my  relation  with  the  finances  with  Mr.  Spencer.  I  continued 
as  a  vice-president  in  responsible  charge  of  the  finances  of  the  company 
until  1910,  when  I  was  elected  president  of  the  Chicago,  Indianapolis 
&  Louisville  Railway  Co.,  with  headquarters  in  Chicago. 

I  had  meanwhile  been  elected  director  of  the  Southern  Railway 
Co.,  on  the  death  of  Mr.  Joseph  Bryan,  of  Richmond,  in  1909.  Septem- 
ber 30,  1910,  I  was  elected  a  member  of  the  executive  committee  on  the 
death  of  Mr.  James  T.  Woodward.  While  I  went  to  Chicago  to  be  in 
charge  of  the  Monon,  as  it  is  called,  I  did  not  sever  my  relation  with 
the  Southern  Railway  Co.  but  continued  in  active  and  responsible  charge 
of  the  finances  of  the  company,  and  continued  on  the  board  of  directors 
and  as  a  member  of  the  executive  committee.  On  Mr.  Finley's  death  in 
November  last  I  was  elected  president  of  the  company. 


13 

Mr.  Thorn:  How  far  have  you  been  conversant  with  and  in  touch 
with  the  policies  and  general  principles  of  management  of  the  company, 
Mr.  Harrison? 

Mr.  Harrison:  During  Mr.  Spencer's  administration  I  was  a  junior, 
and  was  not  consulted  about  policy.  I  had  an  intimate  personal  contact 
with  him  in  its  administration,  and  I  absorbed  his  policy  by  what  he 
told  me,  by  what  I  saw,  and  by  what  was  done.  When  Mr.  Finley 
became  president  he  made  me  his  assistant  in  the  largest  sense  of  the 
term.  We  became  together  responsible  for  the  policy  of  the  company. 
He  consulted  me  about  everything  of  any  magnitude,  any  new  relations 
of  the  company,  and  I  advised  with  him,  and  my  views  and  my  judgment 
were  considered,  if  they  were  not  always  adopted,  in  determining  the 
policy  of  the  company  from  the  beginning  of  Mr.  Finley's  administration 
until  the  end. 

Mr.  Thorn:  Did  that  touch  that  you  had  with  the  management  of 
the  company  give  you  knowledge  of  its  views  and  policies  in  respect  to 
coal  matters  as  well  as  other  matters  ? 

Mr.  Harrison :  It  did,  in  the  general  sense. 

Mr.  Thorn :  Now,  Mr.  Harrison,  will  you  give,  in  your  own  way, 
a  statement  of  the  policies  of  the  company  in  respect  to  the  matters  now 
under  investigation? 

Mr.  Harrison:  I  have  understood  from  the  resolution  adopted  by 
the  Senate,  under  which  this  proceeding  is  held,  that  this  was  an  inquiry 
of  a  general  nature  of  the  sources  of  coal  supply  on  the  Atlantic  sea- 
board as  affecting  the  naval  strategy  of  the  United  States.  In  the  resolu- 
tion there  are  requirements  for  inquiries  with  regard  to  the  particular 
policy  of  the  Southern  Railway  Co.,  and  in  his  opening  statement  at 
this  hearing  Senator  Tillman  has  named  Mr.  Dulaney  as  the  plaintiff, 
so  to  speak,  and  has  named  me  as  the  defendant.  I  accept  that  assign- 
ment to  defend  the  reputation  of  the  Southern  Railway  Co. 

I  have  no  personal  quarrel  with  Mr.  Dulaney.  In  all  the  years  of 
his  contending  with  the  Southern  Railway  Co.  it  has  never  been  my 
fortune  to  come  into  personal  contact  with  him.  I  do  not  think  that 
I  ever  saw  him  before  until  I  saw  him  on  the  witness  stand  here  the 
other  day.  I  have,  of  course,  heard  a  great  deal  of  him,  and  heard 
of  his  claims  and  his  charges  with  regard  to  particular  affairs  in  his 
relation  to  the  Southern  Railway  Co. 

I  was  somewhat  at  a  loss  to  understand  the  motive  for  Mr.  Dulaney's 
charges  as  they  have  been  rehearsed  here.  I  studied  him  with  a  great 
deal  of  interest  when  he  was  on  the  witness  stand,  and,  taking  that  study 
and  my  own  inquiry  from  others  and  what  I  could  learn,  I  believe  that 
Mr.  Dulaney  is  suffering  from  what  the  medical  books  call  the  delusion 
of  persecution.  I  believe  that  it  is  unjustified,  and  in  my  testimony  I 
am  going  to  develop  some  of  the  grounds  of  my  belief. 

I  believe  that  Mr.  Dulaney  is  actuated  by  a  deep-seated  hatred  of 
one  or  two  men  who  have  succeeded  where  he  failed,  who  succeeded  in 
selling  the  Virginia  &  Southwestern  Railway  Co.  where  he  failed,  who 
succeeded  in  making  a  success  of  coal  mining  in  the  Appalachian  district 
where  he  failed.  I  believe  that,  being  unable  to  reach  this  man,  or  these 
men,  he  has  attacked  the  Southern  Railway.  A  railroad  is  always  a 
target  today  for  any  attack,  and  that  is  my  theory  of  why  he  is  before 


14 

us  here  today.  I  resent  with  every  fiber  of  my  being  the  imputations  of 
bad  faith,  of  chicane,  of  malversation  which  have  been  brought  against 
the  management  of  the  Southern  Railway  Co.  in  this  hearing.  I  deny 
them  all,  and  I  take  some  comfort  in  the  belief  that  those  who  know  us 
and  have  done  business  with  us  throughout  the  South — and  there  are 
many — know  our  reputation  and  will  not  put  credit  in  or  give  faith  to 
those  charges  so  far  as  they  affect  the  personal  character  of  the  man- 
agement of  the  Southern  Railway  Co. 

I  feel  a  greater  resentment,  however,  at  the  further  direction  which 
the  charges  have  taken,  namely,  that  the  Southern  Railway  Co.  and 
its  management  have  lent  themselves  servilely  to  the  uses  of  a  few 
men  who  have  no  interest  in  the  South,  who  have  selfish  purposes  to 
accomplish. 

That  charge  fits  in  with  the  temper  of  the  times.  Anybody  is  willing 
today  to  hear  the  charge  that  a  railroad  is  being  used  for  a  dishonest 
purpose.  The  pride  of  the  Southern  Railway  Co.  and  its  organization 
during  many  years  has  been  in  its  own  virility,  in  its  quality  of  leader- 
ship, in  its  quality  of  progress,  and  of  being  first  in  doing  things,  despite 
its  financial  difficulties  which  have  been  its  limitations  at  all  times  during 
its  history. 

Those  are  things  which  I  challenge  our  competitors  to  deny.  They 
know  them.  They  have  found  them  out  in  experience.  Those  are 
things  which  have  given  justification  to  the  advertisement  which  we 
use  of  being  hthe  premier  carrier  of  the  South."  They  are  the  spirit 
of  two  leaders  of  men — Samuel  Spencer  and  William  Wilson  Finley 
infused  through  an  organization.  And 'every  man  in  that  organization 
today  feels  those  things.  I  speak  for  myself,  and  I  venture  to  say  that 
I  speak  for  others  in  the  organization,  when  I  say  that  if  we  knew  for 
a  moment  that  the  stockholders  of  the  Southern  Railway  Co.  had  elected 
a  board  of  directors  who  used  the  Southern  Railway  Co.  for  purposes 
to  the  disadvantage  of  the  South,  I  would  resign.  I  believe  that  what 
I  am  trying  to  do,  what  my  opportunity  is,  is  to  be  of  service  to  the 
South.  And  I  have  devoted  my  life  to  that,  and  shall  so  long  as  I  am 
allowed  to  do  so. 

There  is  a  story  in  Herodotus  which  I  venture  to  apply  to  the 
Southern  Railway  Company,  that  when  Xerxes  was  told  about  how  a 
small  bodv  of  Spartans  were  proposing  to  test  the  pass  of  Thermopylae, 
he  wondered  why  they  did  not  run  away  when  they  saw  his  army,  and 
he  said,  "Especially  as  I  understand  they  are  freemen  and  they  have  no 
one  to  prevent  them  from  running  away,"  and  one  of  his  Greek  allies 
told  him,  "They  are  freemen,  O  King,  but  they  have  a  master  whose 
name  is  Honor,  whom  they  fear  more  than  your  servants  fear  you." 

In  the  administration  of  industry  today,  Mr.  Chairman,  we  hear  a 
great  deal  of  bad  faith  and  of  evil  management,  but  I  dare  risk  the 
reputation  of  the  Southern  Railway  Co.  before  any  tribunal  for  its 
motives,  for  its  purposes,  for  its  patriotism  for  the  South.  It  has  been 
officered  largelv  by  Southern  men.  It  has  always  been  led  by  Southern 
men.  Mr.  Spencer  was  a  Georgian.  Mr.  Finley  was  a  Mississippian. 
There  has  never  been  a  time  when  any  motive  or  interest  on  the  part  of 
anvbodv  outside  of  the  South  has  been  a  controlling  motive  in  the  man- 
agement of  the  Southern  Railway. 


15 

And,  what  is  more,  the  policies  of  the  Southern  Railway  Co. — and 
I  remember  I  am  testifying  un'ler  oath — have  originated  at  all  times 
and  in  every  detail  with  the  management  of  the  Southern  Railway  Co. 
They  have  not  been  directed,  they  have  not  been  suggested  by  anyone 
living  in  New  York  or  anywhere  else,  whether  he  is  on  the  board  of 
directors  or  has  any  other  relation  to  the  property.  The  board  of  direc- 
tors has  dealt  with  the  questions  of  policy  that  the  management  has 
brought  to  them,  and  has  originated  no  question  of  policy. 

THE   VOTING   TRUSTEES   AND    THE   DIRECTORS. 

I  propose  in  testifying  frankly  to  deal  with  names,  with  the  names 
which  have  been  brought  before  this  committee.  First,  I  want  to  dis- 
miss two  names  because  I  have  no  knowledge  of  them  at  all.  We  have 
heard  of  Mr.  Berwirid  and  Mr.  Grant  B.  Schley  as  having  some  malefi- 
cent influence  upon  the  Southern  Railway  Co.  In  the  years  of  my  rela- 
tion to  the  Southern  Railway  Co. — and  an  intimate  relation  it  has  been — 
and  its  officers,  I  have  never  heard  Mr.  Berwind's  name  or  his  business 
mentioned  as  affecting  the  affairs  of  the  Southern  Railway  Co.  I  have 
never  known  Mr.  Berwind,  I  have  never  seen  him,  and  if  he  has  had 
any  influence  upon  the  affairs  of  the  Southern  Railway  Co.  it  has  been 
some  occult  reaction  which  I  can  not  derine,  and  which  I  will  not  admit 
that  my  intelligence  was  so  limited  as  not  to  have  defined  if  it  existed. 

I  may  say  the  same  thing  of  Mr.  Grant  B.  Schley.     I  do  not  know 
Mr.  Schley;  I  never  saw  him  in  my  life.    I  have  no  relations  with  him/ 
and  I  do  not  believe  he  ever  had  any  influence  upon  the  policies  of  the 
Southern  Railway  Co. 

Coming  now  to  those  whom  I  do  know,  and  with  regard  to  whom 
I  have  some  knowledge  and  can  testify,  I  will  speak  first  of  the  voting 
trust  of  the  Southern  Railway  Co.  That  was  an  institution  organized 
at  the  organization  of  the  company  in  1894,  the  three  voting  trustees 
being  J.  Pierpont  Morgan,  Sr.,  who  is  dead,  George  F.  Baker,  Sr.,  and 
Mr.  Charles  Lanier.  As  to  Mr.  Pierpont  Morgan's  relation  to  the 
Southern  Railway  Co.,  he  has  never  been  a  director.  His  official  relation 
has  always  been  that  of  a  voting  trustee.  I  can  not  speak  with  the  same 
certainty  of  what  Mr.  Morgan  said  and  did  with  regard  to  the  Southern 
Railway  Co.  during  Mr.  Spencer's  administration,  because  I  do  not  know, 
but  certainly  from  the  beginning  of  Mr.  Finley's  administration  until 
Mr.  Morgan's  death  I  know — 

Mr.  Thorn:  That  is,  from  1906? 

Mr.  Harrison:  From  1906 — I  know  that  we  have  had  very  little 
contact  with  Mr.  Morgan.  He  has  never  interfered  in  our  affairs.  He 
never  proposed  that  we  should  do  anything.  He  never  discussed  any 
form  of  traffic — including  coal  traffic — with  us  in  the  management  of 
the  company.  My  own  relations  with  Mr.  Morgan  were  of  the  slender- 
est character,  the  most  infrequent,  and  so  far  as  I  heard  what  Mr.  Mor- 
gan said  and  did  with  regard  to  the  Southern  Railway  Co.  it  came  to  me 
through  his  partner,  Mr.  Charles  Steele.  Mr.  Steele  is  a  Southern  man, 
bred  at  the  University  of  Virginia.  He  has  had  his  business  career  in 
New  York,  and  has  been  a  member  of  Mr.  Morgan's  firm  a  good  many 
years.  He  has  been  a  director  of  the  Southern  Railway  Co.  during 


16 

most  of  its  history,  and  he  has  been  a  faithful,  diligent,  helpful,  working 
director  during  all  that  time.  He  has  supported  the  management  where 
it  needed  support,  but  he  has  never  at  any  time  suggested,  on  behalf 
of  himself  as  a  director  or  on  behalf  of  his  fellows  in  the  firm  of  Morgan 
&  Co.,  or  on  behalf  of  Wall  Street  or  anybody  in  the  world,  that  we 
should  do  anything  of  any  kind.  He  has  discussed  with  us  and  criticized 
and  considered  our  policies  as  we  have  developed  them.  He  has  been  the 
most  helpful  director  the  Southern  Railway  Co.  has  had  during  its  his- 
tory, and  his  relation  to  the  Southern  Railway  Co.  is  to  his  credit  and 
to  the  credit  of  the  Southern  Railway  Co.  and  not  in  any  way  to  its 
discredit. 

Of  the  other  members  of  the  voting  trust,  Mr.  George  F.  Baker  I 
have  known  pleasantly,  but  not  intimately  in  any  way.  I  have  never 
come  in  contact  with  him  except  at  long  intervals.  I  have  never  heard 
him  discuss  the  policy  of  the  Southern  Railway  Co.,  except  in  the  barest 
general  outline  from  time  to  time.  He  has  never  to  my  knowledge  pro- 
posed any  policy  or  suggested  any  relation  that  he  might  have  with 
any  other  property,  either  directly  or  indirectly,  as  controlling  the 
destinies  of  the  Southern  Railway  Co. 

Mr.  Charles  Lanier,  the  third  voting  trustee,  Is  a  retired  banker 
in  New  York,  a  man  of  the  highest  respectability,  whose  name  gives 
credit  to  whatever  he  takes  part  in.  ,  He  has  been  a  director  of  the 
Southern  Railway  Co.,  as  well  as  a  voting  trustee,  for  a  number  of  years, 
but  has  never  taken  any  very  active  part  in  the  management. 

The  voting  trust,  organized  in  1894,  has  just  been  dissolved.  It 
has  been,  as  Mr.  Cleveland  used  to  say,  in  "innocuous  desuetude"  for 
a  good  many  years.  The  voting  trustees  would  give  a  proxy  for  the 
election  of  directors  at  the  annual  meeting,  but  I  never  heard  of  their 
meeting  or  considering  the  affairs  of  the  company  as  voting  trustees. 
It  has  been  on  the  cards  for  several  years  to  dissolve  the  voting  trust, 
because  it  no  longer  seemed  to  serve  any  useful  purpose,  that  the  com- 
pany was  strong  enough  to  get  along  without  it.  Soon  after  I  became 
president  I  asked  them  to  dissolve  it,  because  of  my  belief  that  the  con- 
tinued existence  of  it  and  the  misunderstanding  of  its  purpose  by  the 
public  was  harmful  to  the  interests  of  the  Southern  Railway,  and  they 
promptly  and  cheerfully  agreed,  and  they  have  done  it. 

The  management  of  the  Southern  Railway  Co.,  so  far  as  the  exercise 
of  any  control  is  concerned  outside  of  the  officers,  has  been  vested  in 
the  executive  committee  of  the  board  of  directors.  The  executive  com- 
mittee consisted,  during  Mr.  Finley's  administration,  of  Mr.  James  T. 
Woodward,  who  was  president  of  the  Hanover  Bank,  a  Southern  man 
having  large  relations  with  the  South  through  the  banking  connections 
of  the  Hanover;  Mr.  Charles  Steele,  another  Southern  man,  and  Mr. 
Adrian  Iselin,  Jr.,  of  the  firm  of  Iselin  &  Co.,  whose  father  made  in- 
vestments in  the  railroads  of  the  South  in  the  years  immediately  after 
the  war,  and  who  himself  inherited  an  interest  in  and  a  relation  to  those 
properties,  notably  the  East  Tennessee,  Virginia  &  Georgia  Railroad, 
which  is  part  of  the  Southern  Railway  today,  and  t4ie  Mobile  &  Ohio 
Railroad,  and  the  Memphis  &  Charleston  Railroad,  three  of  our  most 
important  lines.  Mr.  Iselin  was  connected  with  those  roads  when  they 


17 

were  sold  to  the  Southern  Railway  Co.,  and  he  naturally,  with  his  knowl- 
edge and  acquaintance  and  interest  in  them — the  interest  continued  finan- 
cially— came  into  the  board  of  directors  of  the  Southern  Railway  Co.  and 
has  been  a  member  of  the  executive  committee — a  hard-working  member 
of  the  executive  committee  who  has  helped  us. 

Another  member  of  the  executive  committee  today  is  Mr.  George 
F.  Baker,  Jr.  Mr.  Baker  is  a  young  man  who  has  come  into  responsi- 
bilities. He  is  an  officer  of  his  father's  great  bank,  the  First  National, 
and  is  highly  esteemed  by  all  those  who  know  him  as  a  diligent,  hard- 
working man.  He  was  made  a  member  of  the  executive  committee  be- 
cause he  was  a  young  man,  and  because  he  was  hard-working,  and 
because  it  was  believed  he  could  be  useful  to  us.  He  has  not  been  a 
member  of  the  executive  committee  or  the  board  long  enough  to  have 
taken  very  much  part  in  the  affairs  of  the  company,  but  he  has  never 
in  any  way  suggested,  nor  has  my  intelligence  acquired  through  anything 
he  has  said  a  suggestion  that  he  was  using  his  position  with  the  Southern 
Railway  Co.  to  advance  any  other  interests  he  might  have  elsewhere. 

The  other  member  of  the  executive  committee — I  do  not  speak  of 
Mr.  Finley  or  myself,  we  have  been  members  during  all  these  years — 
is  Judge  Gary,  the  chairman  of  the  Steel  Corporation.  Judge  Gary 
came  into  the  board  to  succeed  Mr.  Spencer  after  his  death  and  was 
made  a  member  of  the  executive  committee.  Trying  to  think  the  matter 
back,  I  'believe  I  was  the  one  who  suggested  Judge  Gary  to  the  execu- 
tive committee  to  fill  the  vacancy.  My  purpose  in  doing  that,  frankly, 
was  to  help  the  interests  of  the  Southern  Railway  Co.  It  was  before  the 
days  of  universal  disapproval  of  interlocking  directors.  We  had  large 
interests  in  the  Birmingham  district,  of  which  the  Tennessee  Coal  & 
Iron  Co.  is  a  factor.  We  had  difficult  questions  arising  out  of  the  pur- 
chase and  subsequent  sale  back  to  the  Tennessee  Coal  &  Iron  Co.  of  the 
Birmingham  Southern  Railroad,  and  I  believed  that  in  all  those  relations 
it  would  be  useful  to  us  to  have  Judge  Gary  interested  in  our  affairs. 

He  has  been  interested  in  our  affairs,  and  I  think  at  the  moment  of 
an  instance  of  a  relation  with  the  Tennessee  Coal  &  Iron  Co.  where  the 
fact  that  Judge  Gary  was  a  director  of  the  Southern  Railway  Co.  was 
of  very  great  importance  to  the  Southern  Railway  Co.  and  more  to  its 
advantage  than  to  that  of  the  Tennessee  Coal,  Iron  &  Railroad  Co.  Judge 
Gary  has  never  at  any  time  used  his  office  of  director  or  as  a  member  of 
the  executive  committee  to  propose  or  to  suggest  any  use  of  the  traffic 
policy  of  the  Southern  Railway  Co.  in  behalf  of  the  Tennessee  Coal, 
Iron  &  Railroad  Co.  or  of  the  Steel  Corporation.  I  have  watched  Judge 
Gary  very  carefully,  since  we  have  heard  so  much  about  interlocking 
directors,  on  this  very  point,  and  he  has  been  most  scrupulous  in  his 
separation  of  his  identity  as  an  officer  of  the  Steel  Corporation  and  as 
a  director  of  the  Southern  Railway  Co.  in  our  board  meetings  and  in 
our  discussions  of  our  affairs  in  which  he  has  taken  part.  I  can  deny, 
therefore,  with  absolute  confidence  that  Judge  Gary  has  exercised  any 
influence  over  the  policy  of  the  Southern  in  general  traffic,  in  purchases 
from  the  Steel  Corporation,  or  in  respect  of  coal  moving  from  the  Bir- 
mingham district,  or  that  he  has  suggested  any  such  interest. 

Mr.  Thom:  Or  any  other  district? 

Mr.  Harrison :  Or  any  other  district  of  any  kind. 


18 

Is  there  any  other  individual  that  has  been  named? 

Mr.*  Thorn :  I  do  not  recall  any. 

Mr.  Harrison:  To  sum  up,  I  repeat  that  neither  Mr.  Spencer  nor 
Mr.  Finley  was  ever  the  tool  of  any  man  with  a  sinister  purpose.  We 
have  been  actuated  by  ambition  to  play  a  part  in  the  regeneration  of  the 
South  and  to  reward  in  money  those  who  adventured  their  capital  in  the 
South  to  enable  us  to  do  that.  '  The  management  of  the  Southern  Rail- 
way Co.  has  had  its  eye  single  to  the  future  of  the  South  and  it  has  had 
to  make  its  living. 

In  making  our  living — 

RELATIONS     WITH     OTHER     RAILROADS. 

Mr.  Thorn :  Before  starting  on  that,  Mr.  Harrison,  I  call  your  atten- 
tion to  the  charge,  which  seems  pertinent  to  what  you  have  just  been 
saying,  that  the  traffic  policy  of  the  Southern  Railway  in  respect  to  the 
movement  of  coal  was  dictated  to  it  by  the  Pennsylvania  Railroad  traffic 
department.  I  would  like  to  have  you  say  whether  or  not  that  is  true? 

Mr.  Harrison :  That  is  absolutely  untrue.  The  answer  to  that  is  the 
answer  which  I  have  made  of  the  virility  of  the  management  of  the 
Southern  Railway.  There  is  no  officer  of  the  Pennsylvania  Railroad, 
or  of  the  Norfolk  &  Western  Railway,  or  of  the  Chesapeake  &  Ohio 
Railway,  or  the  Virginian  Railway,  or  the  C,  C.  &  O.  Railway,  or  any 
other  of  our  competitors,  or  any  other  of  the  coal-carrying  railroads  who 
ever  could  have  directed  the  policy  of  the  Southern  Railway  Co.  We 
have  fought  our  own  battles,  we  have  contended  for  our  own  interests, 
and  we  have  protected  ourselves.  After  one  of  the  hearings  of  last  week 
an  officer  of  one  of  the  roads  I  have  named  was  talking  to  me,  and  he 
was  evidently  "tickled,"  as  he  expressed  it,  with  the  suggestion  that  his 
company  had  been  able  to  control  the  Southern  Railway  Co.  The  best 
testimony  on  that  subject,  so  far  as  the  control  of  the  Southern  Railway 
Co.  by  the  Pennsylvania,  or  the  Norfolk  &  Western,  or  any  of  the  rest 
of  them  is  concerned,  would  be  from  the  officers  of  those  companies.  I 
deny  any  such  control. 

Mr.  Thorn :  Has  the  traffic  policy  of  the  Southern  Railway  in  respect 
to  coal  been  an  independent  one,  adopted  solely  with  reference  to  the 
interests  and  duties  of  the  Southern  Railway  Co.,  or  has  it  been  in  any 
way  dependent  on  any  other  company? 

Mr.  Harrison :  It  has  been  one  solely  in  the  interest  of  the  problem 
of  the  Southern  Railway  Co.  in  building  its  system  in  the  South.  I  am 
coming  to  that,  but  if  you  will  allow  me  I  will  postpone  that  and  go 
back  to  where  I  was. 

Mr.  Thorn :  Very  well. 

HOW  MR.  SPENCER  MADE  THE  MAP  OF  THE  SOUTHERN. 

Mr.  Harrison:  I  would  like  to  tell  briefly  the  history  of  the  devel- 
opment of  the  Southern  Railway  Co.,  what  it  has  been  and  what  it  has 
been  for. 

The  backbones — there  are  two  of  them — of  the  Southern  Railway 
Co.  were  the  Richmond  &  Danville  Railroad  and  the  East  Tennessee, 


19 

Virginia  &  Georgia,  which  were  together  controlled  by  the  Richmond 
Terminal  Co.,  which  failed  disastrously  in  1892.  Several  attempts  at 
reorganization  were  made,  and  failed,  by  people  in  New  York  and  else- 
where— Baltimore — and  finally  those  who  were  largely  interested  in  the 
securities  of  the  old  companies  went  to  Mr.  Morgan  and  asked  him  to 
take  hold  of  it.  He  did  take  hold  of  it,  and  committed  the  carrying  out 
of  the  policy  of  reorganization  to  his  partner,  Mr.  Charles  H.  Coster, 
who  is  now  dead,  and  he  carried  through  a  very  difficult  reorganization, 
which  resulted  in  the  organization  of  the  Southern  Railway  Co.  in  1894. 

The  lines  of  railroad  vested  in  the  Southern  Railway  Co.  at  its 
organization  were  two  lines  extending  on  either  side  of  the  Alleghany 
Mountains,  the  Richmond  &  Danville  on  the  east  and  the  East  Tennes- 
see lines  on  the  west.  They  were  interior  lines.  They  touched  tidewater 
at  only  two  places,  at  West  Point,  Va.,  and  at  Brunswick,  Ga.,  where 
the  East  Tennessee  has  a  long  line  reaching  down  from  Atlanta.  They 
served  only  a  portion  of  the  South.  Mr.  Spencer  conceived  the  neces- 
sity of  extending  this  system  of  railroads  when  he  took  hold  of  it  as  the 
first  president.  For  several  years  he  conducted  a  very  brilliant  cam- 
paign of  acquisition  of  railroads.  He  extended  the  system  to  the  Atlantic 
seaboard  at  Norfolk,  at  Charleston,  at  Savannah,  at  Jacksonville,  to  the 
Gulf  at  Mobile  and  at  New  Orleans,  to  the  Mississippi  River  at  Memphis 
and  St.  Louis,  and  to  the  Ohio  River  at  Louisville  and  Cincinnati,  and  he 
acquired  an  interest  in  the  Monon  Railroad,  reaching  out  to  Chicago. 

He  acquired  a  great  many  railroads  in  doing  that.  His  purpose 
was  to  give  the  Southern  Railway  Co.,  as  a  traffic-bearing  instrument, 
a  leading  position  in  the  South.  The  result  of  his  policy  is  one  which 
can  best  be  answered  by  any  man  who  has  an  industrial  plant  on  the 
Southern  Railway  today.  Such  a  man  will  tell  you — many  of  them  have 
told  me — that  it  is  worth  more  to  them  to  be  on  the  Southern  Railway 
lines  than  on  any  other  lines  in  the  South  because  the  Southern  Railway 
Co.  reaches  so  many  points,  because  the  Southern  Railway  Co.  through 
one  management  is  able  to  control  traffic  moving  to  so  many  points  in 
the  South  and  to  the  gateways  leading  to  and  from  the  South. 

In  expanding  the  system  Mr.  Spencer  necessarily  had  the  problem 
of  what  that  system  was  going  to  serve.  His  ideal  was  that  it  should 
serve  the  industrial  South.  He  sought  to 'encourage  and  propagate  in 
every  way  the  enlargement  of  industries  on  the  lines  of  the  Southern. 
What  this  policy  meant  and  what  it  accomplished  is  illustrated  by  the 
statement  that,  on  the  purely  industrial  side,  the  records  of  the  land  and 
industrial  department  of  the  Southern  Railway  show  that  during  the 
years  from  1900  to  1913,  inclusive,  8,337  new  manufacturing  plants  of 
various  kinds,  representing  an  investment  aggregating  $500,000,000,  were 
located  on  the  lines  of  the  Southern  Railway  Co.  And  during  the  same 
period  additions  were  made  to  2,486  factories  already  located  on  those 
lines  at  an  aggregate  outlay  of  additional  capital  amounting  to 
$100,000.000. 

In  undertaking  to  provide  for  an  industrial  development  in  the 
South  it  was  necessary,  in  the  interest  of  those  industries,  that  there 
should  be  a  regular  supply  of  coal.  The  provision  of  a  source  of  coal 
supply  to  the  industrial  South  was  part  of  Mr.  Spencer's  problem  and 
part  of  his  action.  Our  lines  in  the  Birmingham  district,  before  the 


20 

organization  of  the  Southern  Railway  Co.,  reached  coal  mines  west  of 
Birmingham.  Our  East  Tennessee  lines  reached  a  mining  district  north 
of  Knoxville.  Mr.  Spencer  realized  that  it  was  necessary  that  there 
should  be  a  further  source  of  coal  supply  for  the  industrial  South,  an^ 
especially  for  the  cotton  mill  district  in  the  Piedmont  country  east  of 
the  Alleghanies  in  the  Carolinas. 

He  bought,  in  that  interest,  the  Knoxville,  Cumberland  Gap  &  Louis- 
ville Railroad,  the  line  extending  from  Knoxville  to  Middlesboro,  the  line 
technically  to  Cumberland  Gap  which  had  trackage  rights  into  the  dis- 
trict on  the  other  side  of  the  mountain.  He  bought  the  Knoxville  & 
Bristol  Railroad  which  appears  on  the  map  as  connecting  the  K.,  C.  G. 
&  L.  Railroad  with  Morristown.  At  the  time  of  the  purchase  of  the 
Knoxville  &  Bristol  road,  my  understanding  is  that  it  was  Mr.  Spencer's 
plan  to  connect  the  K.,  C.  G.  &  L.  road  at  some  point  equidistant,  or 
thereabouts,  between  Cumberland  Gap  and  Knoxville  with  a  short  cut- 
off to  the  point  of  nearest  contact  with  the  Knoxville  &  Bristol  Railroad, 
and  rebuild  the  Knoxville  &  Bristol  Railroad  so  as  to  move  coal  from 
the  Middlesboro  district  to  the  southeast  through  Morristown  via  the 
K.,  C.  G.  &  L.  and  the  Knoxville  &  Bristol. 

That  was  never  done.  The  quality  of  the  coal  mined  in  the 
Middlesboro  district  was  a  part  of  that  decision.  The  other  part 
of  that  decision  was  the  acquisition  of  the  Virginia  &  Southwestern,  and 
the  access  which  the  acquisition  of  the  Virginia  &  Southwestern  gave  to 
the  Appalachian  coal  region. 

Without  discussing  further  the  details  at  this  time  of  the  acquisi- 
tion of  the  Virginia  &  Southwestern,  I  mention  it  simply  in  support 
of  my  general  statement  that  the  acquisition  of  that  road  and  the  reach- 
ing of  the  coal  on  that  road  w'as  in  the  interest  of  the  industrial  South, 
and  particularly  of  the  mill  district  in  the  Carolinas. 

THE    TRAFFIC    ESSENTIALLY    A    TRAFFIC    IN     MANUFACTURES  I     AND    ONLY 

INCIDENTALLY   IN   COAL. 

The  traffic  of  the  Southern  Railway  Co.  is  a  variegated  traffic.  The 
Southern  Railway  has  never  been  and  has  never  considered  itself  a  coal 
railroad  as  such,  in  the  sense,  that  the  Norfolk  and  Western,  the  Chesa- 
peake &  Ohio,  and  the  Virginian  are  coal  roads. 

I  have  taken  the  classification  of  tonnage  moved  by  the  Southern 
Railway  Co.  for  the  first  year  of  its  history  and  compared  it  with  the 
last  year  of  its  history,  or  with  the  year  ended  June  30,  1913.  We  have 
not  the  statistics  for  the  year  just  ended.  Taking  the  customary  groups 
of  classification  of  tonnage,  and  dealing  in  percentages:  In  1895  20 
per  cent  of  the  Southern  Railway  traffic  was  products  of  agriculture. 
In  1913  11  per  cent  was  products  of  agriculture,  although  the  total 
tonnage  increased  from  1,268,000  tons  to  3,500,000  tons.  I  am  using 
round  figures. 

Mr.  Thorn :  You  mean  that  is  the  total  tonnage  of  agricultural  prod- 
ucts? Not  the  total  tonnage  of  the  road? 

Mr.  Harriso^ :  Products  of  agriculture.  In  1895  the  percentage  of 
the  total  traffic  of  products  of  animals  was  2.8  per  cent.  In  1913  it 
was  1.1  per  cent,  although  the  tonnage  of  products  of  animals  had  in- 
creased from  173,000  tons  to  323,000  tons. 


21 

In  1895  the  per  cent  of  the  total  tonnage  of  products  of  mines  was 
38.1  per  cent,  and  in  1913  it  was  40  per  cent,  the  total  tonnage  of  prod- 
ucts of  mines  having  increased  from  2,345,000  tons  to  11,779,000  tons. 

Included  in  this  statement  of  products  of  mines  is  a  small  tonnage 
in  anthracite  coal,  which  has  remained  practically  constant  during 
the  whole  history  of  the  company,  about  50,000  tons  per  annum — as 
much  in  the  beginning  as  in  the  end.-  That  is,  coal  used  for  domestic 
purposes,  more  or  less  as  a  luxury. 

The  principal  item  of  coal  is  bituminous  coal.  Included  in  my 
statement  of  products  of  mines,  the  bituminous  coal  was  29.37  per  cent 
of  the  total  tonnage  of  the  company  in  1895.  In  1913  it  was  28.95 
per  cent,  although  the  tonnage  had  increased  from  1,812,000  tons  to 
8,526,000  tons. 

To  complete  my  statement  of  the  total  tonnage  of  the  company,  the 
per  cent  of  products  of  forests  in  1895  was  11.47,  and  1913  it  was  16.98 
per  cent,  the  tonnage  having  increased  from  708,000  tons  in  1895  to 
5,000,000  tons  in  1913. 

And  finally — and  what  we  take  the  greatest  satisfaction  in — I  come 
to  manufactures  and  miscellaneous  tonnage.  Of  the  total  tonnage  of 
the  company  in  1895  the  products  of  manufactures  and  miscellaneous 
was  27.16  per  cent.  In  1913  it  was  30.03  per  cent,  and  the  total  tonnage 
had  increased  from  1,677,000  tons  to  8,843,000  tons.  It  thus  appears  that 
for  every  ton  of  coal  carried,  we  carried  a  ton  of  manufactures  and 
miscellaneous  tonnage. 

What  that  means  may  be  illustrated  by  comparison  with  the  traffic 
of  the  coal-carrying  roads.  Remembering  that  the  tonnage  of  bituminous 
coal  carried  by  the  Southern  Railway  Co.  in  1913  was  28  per  cent  of  its 
entire  tonnage,  we  find  that  on  the  C.  &  O.  the  tonnage  of  bituminous 
coal  for  the  same  year  was  63.68  per  cent;  on  the  Norfolk  &  Western 
67.71  per  cent;  on  the  Virginian  85.60  per  cent. 

The  point  that  I  wished  to  make  by  those  figures  is  that  there  is  a 
variety  of  tonnage  on  the  Southern  Railway,  and  that  it  is  not  pri- 
marily a  coal-carrying  road;  that  its  duty  in  carrying  coal  is  primarily 
to  supply  coal  to  the  industries  on  its  lines. 

Mr.  Thorn:  Is  there  not  this  lesson,  too,  Mr.  Harrison,  that  its 
policy  has  built  up  a  very  large  industrial  system  on  the  Southern  road 
as  compared  with  what  the  coal-carrying  roads  have  built  up  on  their 
lines  ? 

Mr.  Harrison :  I  believe  that  to  be  a  fact.  I  have  not  the  figures 
to  show  the  number  of  industries  on  the  coal-carrying  railroads,  but 
I  know  that  the  Southern  Railway  Co.  has  added  industries  year  after 
year  during  every  year  of  its  history,  and  the  policy  of  promoting 
industry  has  been  the  policy  of  the  Southern  during  its  whole  life.  One 
who  travels  on  our  main  line  through  the  Carolinas  can  see  the  smoke 
of  a  chimney  practically  all  the  way.  It  is  one  of  the  marvels  of  the 
growth  of  the  industrial  South.  Eighteen  years  ago  when  I  first  went 
over  that  line  there  were  very  few  factories. 

Now,  it  is  no  miracle  that  has  brought  all  those  factories  to  the  lines 
of  the  Southern  Railway. 

Our  growth,  so  far  as  the  coal  traffic  is  concerned,  was  at  one  time 


22 

checked  by  the  development  of  the  hydroelectric  power.  The  rivers  com- 
ing down  from  the  mountains  in  the  Piedmont  district  have  been  dammed 
and  water  power  developed,  and  at  one  time  a  great  many  of  the  cotton 
mills  in  that  district  took  on  electric  power  in  place  of  coal.  That  fact 
had  a  serious  effect  upon  our  policy  in  relation  to  our  coal  traffic.  We 
hesitated  because  we  did  not  know  how  far  it  was  going  or  whether  it 
was  necessary  or  desirable  to  increase  our  investment  in  coal-carrying 
facilities  if  we  were  not  to  continue  to  supply  those  factories  with  coal 
as  we  had  in  the  past. 

The  extraordinary  thing  has  happened,  that,  after  an  experience  with 
that  hydroelectric  power,  most  of  those  factories  are  now  using  coal.  I 
do  not  mean  they  have  abandoned  the  hydroelectric  power,  but  the 
growth  of  the  industry  has  been  such  as  to  create  a  necessity  of  a  steam 
plant  in  almost  every  factory,  so  that  the  continued  use  of  coal  has  been 
a  characteristic  of  the  cotton^mill  development,  and  it  is  a  growing  busi- 
ness today,  rather  than  a  dying  business,  as  we  at  one  time  thought  it  was. 

Senator  Chilton:  Have  you  had  one' general  policy  about  developing 
your  waterpower,  or  has  it  been  local  and  confined  to  the  individual  busi- 
ness ?  .  Have  you  a  general  system  of  development  ? 

Mr.  Harrison :  Several  enterprising  men  have  taken  hold  of  it.  It 
is  controlled,  as  I  understand,  very  largely  by  a  few  people. 

Senator  Chilton :  Do  you  know  who  the  people  are? 

Mr.  Harrison :  Mr.  Duke,  whose  name  is  known  in  connection 
with  the  American  Tobacco  Co.,  is  one  of  the  largest  holders  of  water- 
power.  There  are  others  besides;  I  do  not  remember  their  names. 

Senator  Chilton:  Do  they  build  high  dams  or  low  dams? 

Mr.  Harrison:  They  build  all  kinds  of  dams.  They  have  experi- 
mented with  every  form  of  power. 

Senator  Chilton :  That  is  a  big  and  open  question  in  my  State  and  I 
asked  merely  for  the  information. 

Mr.  Thorn :  The  Southern  Railway  Co.  has  no  interest  in  any  of  these 
water  developments? 

Mr.  Harrison :  None  at  all ;  it  has  been  a  competitor  of  our  coal  busi- 
ness wherever  it  has  appeared. 

Senator  Chilton:  But  you  found  that,  like  the  development  of  the 
electric  railways,  it  helps  both? 

Mr.  Harrison :  It  does,  sir.  We  have  said  that  publicly.  Mr.  Finley 
said  it,  and  I  have  said  it,  that  we  advocate  the  development  of  the  hydro- 
electric power  because  it  develops  industry,  and  there  is  glory  enough  for 
all  when  you  get  through. 

Senator  Tillman :  I  should  think  a  railroad  would  want  freight  rather 
than  glory. 

Mr.  Harrison :  We  get  the  freight,  sir ;  the  glory  makes  the  freight. 

Senator  Tillman:  And  the  freight  makes  the  glory? 

Mr.  Harrison:  They  interact. 

Supplementing  the  growth  of  the  coal  traffic  on  the  Southern  Rail- 
way system  with  the  growth  of  its  industrial  traffic,  I  would  like  to  put  in 
a.  statement  showing  the  number  of  tons  of  bituminous  coal  carried  by  the 
Southern  Railway  every  year  of  its  history,  showing  an  increase,  as  I 
have  stated,  of  from  1,812,000  tons  in  its  first  year  to  8,576,000  in  the 


23 

year  1914  just  closed,  increasing  gradually  and  steadily  during  the  whole 
period. 

(The  statement  here  submitted  by  the  witness  is  as  follows:) 

Southern  Railway  Co. — Bituminous  coal  carried. 

Tons.  Tons. 

1895    1,812,689     1905    6,114,313 

1896   2,185,860     1906    6,356,510 

1897    2,056,920     1907    6,615,408 

1898   2,468,397     1908    6,485,815 

1899   2,969,482     1909 6,312,592 

1900   3,519,788     1910   7,408,914 

1901    ^941,013     1911    7,881,993 

1902   5,241,771     1912   8,568,058 

1903    6,021,230     1913    8,526,232 

1904 6,215,453     1914  (June  estimated) .     8,576,586 

Senator  Chilton:  Where  is  the  coal  for  your  factories  derived  from? 
Where  do  you  get  your  coal  supply  mostly  for  your  factories? 

Mr.  Harrison :  It  comes  from  all  of  our  sources  of  coal  supply,  but 
today  the  Carolina  territory  is  drawing  its  coal  somewhat  from  what  we 
call  the  Tennessee  district,  north  of  Knoxville,  and  somewhat  from  the 
Virginia  &  Southwestern  district.  The  factories  in  the  western  part  of 
our  territory  get  a  good  deal  of  coal  from  the  Birmingham  district. 
There  are  competitive  conditions  which  from  year  to  year  change  that. 

THE  FINANCIAL   HISTORY 

I  come  now  to  the  financial  history  of  the  company,  which  has  been 
so  large  a  factor  in  everything  we  have  done.  In  carrying  out  his  policy 
of  expansion,  Mr.  Spencer  was  required  to  resort  to  various  expedients 
to  finance  his  purchases.  The  original  financial  plan  of  the  company  was 
the  creation  of  a  first  consolidated  mortgage  for  $120,000,000  at  the  time 
the  company  was  organized.  Most  of  the  bonds  authorized  to  be  issued 
under  that  mortgage  were  reserved  to  take  up  underlying  bonds  already 
in  existence.  There  was  a  provision  of  $20,000,000  at  the  rate  of 
$2,000,000  a  year  for  the  future  development  of  the  system. 

It  is  evident  that  that  plan  was  very  soon  outstripped.  The  roads 
which  were  acquired — like  the  Memphis  &  Charleston  and  our  St.  Louis 
division,  the  L.  E.  &  St.  L. — were  acquired  by  purchase  money  mort- 
gages. Special  bonds  of  the  Southern  Railway  Co.  were  issued,  secured 
by  a  lien  directly  upon  the  property  purchased.  Other  railroads  were 
bought  for  cash,  or  for  the  exchange  of  such  securities  as  we  had  in  the 
treasury,  and  there  was  accumulated  in  that  way  a  debt  of  $16,000,000 
for  the  acquisition  of  railroads. 

Mr.  Douglas:  Will  you  state  during  what  period  of  time  that  was? 

Mr.  Harrison:  I  am  speaking  generally  of  the  period  of  time  from 
1895  to  1906. 

This  debt  of  $16,000,000,  used  in  the  acquisition  of  railroads,  was 

Excluding  St.  Louis  division.  For  purposes  of  comparison,  the  1902  annual 
report  shows  4,828,784  tons  carried  in  1901,  including  L.  E.  &  St.  L.  Ry.,  July- 
December,  1900,  and  St.  Louis  division,  January- June,  1901. 


24 

funded  temporarily  by  an  issue  of  five-year  bonds,  made  in  1904.  Mr. 
Spencer'was  working  all  the  time  to  a  general  financial  plan,  and  in  1906 
his  general  financial  plan  was  brought  out,  consisting  of  what  is  known 
as  our  development  and  general  mortgage  bonds.  That  was  a  mortgage 
for  an  authorized  issue  of  $200,000,000  of  bonds,  of  which  about  half 
were  reserved  to  take  up  existing  bonds,  including  the  purchase  money 
mortgage  bonds  which  had,  been  created  in  the  interval.  It  did  not  take 
up  the  first  consolidated  mortgage  bonds,  but  supplemented  that,  and  it 
left  nearly  $100,000,000  of  bonds  to  be  issued  from  time  to  time  for  im- 
provements and  betterments  of  the  property.  Those  bonds  were  fixed  at 
the  time  of  their  creation  as  4  per  cent  bonds.  Mr.  Spencer  sold 
$20,000,000  of  those  bonds  at  the  time  of  their  creation. 

Senator  Tillman :  What  did  he  get  for  those  bonds  ? 

Mr.  Harrison:  He  got  87  for  the  4  per  cent  bonds. 

I  have  here  a  graphic  chart  showing  the  range  of  prices  of  25  railroad 
bonds  from  1904  to  1914.  I  will  ask  that  this  be  put  in  evidence  to  illus- 
trate that  when  these  development  bonds  were  brought  out  in  1906,  the 
tendency  of  prices  of  railroad  bonds  had  started  down  already,  having 
been  highest  in  1905,  but  it  had  not  yet  become  apparent  that  it  was  a  con- 
stant tendency. 

(The  chart  here  submitted  by  Mr.  Harrison  is  as  follows:) 


STANDARD  BONDS 


Chart  of  Prices  of  Twenty-five  Railroad  Bonds,  1904-1914 

When  the  first  $20,000,000  of  these  development  bonds  were  sold, 
Mr.  Spencer  believed  that  the  financial  problem  of  the  Southern  Rail- 
way was  solved.  He  was  very  much  elated;  he  deemed  it  a  great 
achievement,  as  it  was,  to  have  brought  the  credit  of  the  railroad  to  the 
point  where  it  could  sell  4  per  cent  bonds. 


25 

Mr.  Lyon:  But  not  at  par? 

Mr.  Harrison :  But  not  at  par.  He  believed  that  those  bonds  would 
be  selling  in  the  nineties  within  a  few  years,  taking  rank,  as  they  became 
seasoned,  with  other  bonds  of  their  class,  which  were  selling  in  the 
nineties. 

With  that  confidence  in  the  future,  and  with  that  first  sale  of  those 
$20,000,000  of  bonds,  Mr.  Spencer  invested  the  proceeds  of  that 
$20,000,000  in  improvements  and  betterments  of  the  Southern  Railway 
property.  He  began  the  policy  of  double  track;  began  the  policy  of  im- 
provement of  terminals  but  within  six  months  after  that  time  he  was 
dead.  He  had  committed  the  company  to  large  plans,  to  large  contracts, 
to  large  obligations  during  that  period,  in  the  confidence  that  the 
$5,000,000  a  year  of  those  development  bonds  which  the  mortgage  pro- 
vided might  be  issued  for  betterments  and  improvements  could  be  sold 
currently  with  their  issue. 

THE  FINANCIAL  CRISIS  IN   1908. 

Upon  Mr.  Spencer's  death  we  were  faced  with  as  serious  a  difficulty 
as  ever  any  railroad  had — to  provide  for  the  accruing  maturities  of  these 
obligations  of  construction  which  had  been  undertaken.  Business  was 
then  at  a  high  tide;  we  were  doing  a  very  large  business,  larger  than 
ever  before.  The  price  of  bonds,  however,  had  begun  to  go  down,  as 
shown  by  the  chart  which  I  have  offered  in  evidence,  and  when  in  the 
beginning  of  1907  we  tried  to  sell,  as  Mr.  Spencer  had  expected  to  do, 
some  more  of  those  development  bonds  to  take  care  of  our  maturing 
obligations,  the  market  had  dropped  to  the  point  where  a  4  per  cent  bond, 
unseasoned,  was  not  salable  at  a  fair  price  to  the  company.  They  never 
have  been  back  there  since;  they  have  gone  steadily  down,  as  shown  by 
that  chart. 

Mr.  Thorn:  At  what  price  are  they  now,  Mr.  Harrison? 

Mr.  Harrison :  I  believe  the  market  price  of  them  is  about  73. 

We  met  the  necessity  in  February,  1907,  by  the  first  issue  of  short- 
term  notes  (we  already  had  a  short-term  bond,  five-year,  outstanding). 
In  February,  1907,  we  created  $15,000,000  of  three-year  notes.  They 
sold  very  well.  My  memory  is  that  we  sold  them  at  95^,  which  was 
considered  a  fair  price  at  the  time. 

We  applied  the  proceeds  of  these  notes  to  meeting  construction 
obligations  previously  assumed,  not  to  anything  new.  In  the  autumn 
of  1907  came  on  the  panic,  and  in  the  winter  and  spring  of  1908  was 
the  financial  crisis  of  the  Southern. 

We  had  many  obligations  maturing;  we  had  no  money  to  provide 
for  them.  We  had  no  credit.  Our  friends  were  willing  to  do  what 
they  could  for  us,  but  they  said  we  had  no  credit;  everybody  wanted 
money  at  once;  money  did  not  grow  upon  trees;  and  we  came  in 
February  and  March,  1908,  as  near  financial  disaster  as  it  was  pos- 
sible for  a  railroad  to  go.  Our  traffic  fell  away;  our  earnings  de- 
creased ;  our  income  was  small.  There  is  only  one  test  of  railroad  credit 
that  I  have  ever  been  able  to  apply  with  satisfaction,  and  that  is  in- 
come. A  railroad  or  any  other  industry  with  income  can  always  bor- 


26 

row  money,  if  its  income  is  large  enough  to  have  a  safe  margin  over 
the  additional  burden  which  it  assumes  in  interest.  We  did  not  have 
that  margin  in  the  spring  of  1908.  I  spent  that  winter  largely  in  New 
York.  Mr.  Finley  spent  the  winter  on  the  railroad.  Mr.  Finley's  effort 
was  to  retrench  in  every  way  that  it  was  possible,  to  cut  down  the 
expenses  so  as  to  come  within  our  income,  and  to  avoid  disaster.  He 
was  engaged  in  a  herculean  task,  and  he  was  doing  it  diligently  and 
earnestly.  My  efforts  in  New  York  were  to  borrow  $1,000,000  and 
$2,000,000  at  a  time  to  tide  over  this  and  tide  over  that,  all  the  time 
talking  come  comprehensive  plan  in  trying  to  promote  a  condition  of 
mind  of  our  friends  who  were  willing  to  help  us  within  reasonable  limits, 
that  the  limits  were  reasonable,  and  that  they  should  help  us. 

In  considering  this  period  the  other  day,  I  turned  up  some  personal 
letters,  which  I  wrote  to  Mr.  Finley  at  the  time.  They  were  manuscript 
letters,  written  after  the  heat  of  a  day's  work,  and  I  read  one  or  two 
of  them  simply  to  illustrate  what  was  our  situation  at  that  time. 

Here  is  a  letter  which  is  dated  "Tuesday  night."  It  was  in  January, 
1908,  although  that  date  does  not  appear  upon  it. 

We  had  just  borrowed  $2,000,000  from  three  banks,  and  paid  10 
per  cent  for  it  for  a  short  time,  three  months,  I  think  it  was  [reading]  : 

UNIVERSITY  CLUB, 
FIFTH  AVENUE  AND  FIFTY-FOURTH   STREET, 

Tuesday  night. 

DEAR  MR.  FINLEY  :  It  is  evident  that  the  two  millions  loan  must  suffice  to  carry 
us  over  March  1 ;  probably  even  over  April  1.  Under  the  circumstances  we  can  not 
afford  to  pay  out  an  unnecessary  dollar.  I  suggest  you  consider  an  arbitrary  order 
to  stop  every  single  bit  of  construction  for  which  the  Southern  is  advancing  money. 
We  know  by  experience  the  difficulties  which  are  opposed  to  all  such  action,  but  I 
believe  it  can  be  done  by  simply  shutting  down  the  cash  box.  Of  course  the  con- 
tractors will  howl.  We  will  hear  of  the  dread  "retained  per  cents,"  and  there  will 
be  trouble,  but  it  does  not  seem  to  me  that  construction  contracts  are  any  more 
sacred  than  contracts  for  ordinary  supplies,  and  we  have  kept  the  supply  men  wait- 
ing without  mercy,  many  of  them  for  several  months.  This  action  would  take 
courage,  but  it  takes  courage  to  live  these  melancholy  days. 

Faithfully   yours, 

FAIRFAX  HARRISON. 

Another  note  [reading]  : 

80  BROADWAY, 

NEW  YORK,  February  20,  1908. 

DEAR  MR.  FINLEY  :  Our  financial  pot  is  really  boiling  at  last.  This  morning  we 
found  that  Mr.  Woodward  was  leaving  at  noon  to-day  to  spend  several  days  at  his 
place  in  Maryland.  So  in  response  to  a  hurry  call  I  got  Steele  and  Mr.  Iselin  to 
meet  at  the  Hanover  Bank  and  the  whole  question  was  discussed.  Both  Mr.  Wood- 
ward and  Mr.  Iselin  agreed  to  the  plan  which  was  to  attempt  to  arrange  a  loan  of 
$10,000,000  on  development  mortgage  bonds  at  60,  putting  it  up  to  the  two  insurance 
companies  to  take  a  substantial  part  to  protect  the  large  investment  they  already 
have  in  the  Southern.  Steele  has  since  seen  Mr.  Baker,  who  is  an  important  factor 
in  Mutual  Life,  and  has  sounded  Mr.  Randolph.  The  latter  says  that  Mr.  Claflin 
must  deal  with  us  for  the  N.  Y.  Life,  so  a  meeting  is  being  arranged  for  to-morrow 
morning  at  10  at  the  Financial  Emergency  Hospital — Mr.  Morgan's  library.  At  that 
hour  please  think  of  me  as  going  under  ether.  I  will  wire  you  the  result  of  the 
operation  as  soon  as  there  is  anything  to  say. 

Faithfully  yours, 

FAIRFAX  HARRISON. 


27 

Here  is  another  letter,  dated  March  2,  to  Mr.  Finley  [reading]  : 

80  BROADWAY,  March  2,  1908. 

DEAR  MR.  FINLEY:  There  is  a  thick  fog  over  New  York  to-day,  but  whether 
this  is  an  explanation  or  not  I  can  not  yet  see  daylight  ahead  for  the  Southern.  I 
have  been  on  my  legs  all  day  running  from  one  man  to  another  with  bland  words, 
but  we  are  still  blocked  by  the  New  York  Life,  which  declines  to  go  into  the  smaller 
plan  unless  assured  that  in  some  way  the  company  will  be  provided  for  over  January 
1  next.  We  are  working  steadily,  and  I  am  not  yet  fearful  of  the  ultimate  result, 
but  I  can  not  help  thinking  of  Ansley  sitting  on  his  diminishing  cash  box  with  his 
hopeful  eyes  glued  on  the  horizon  whence  comes  the  cash  in  flush  times. 

Faithfully   yours, 

FAIRFAX  HARRISON. 

Another  note.  I  am  reading  these  for  the  purpose  of  laying  a  foun- 
dation for  what  I  am  going  to  say,  as  a  reason  why  we  did  not  do  things. 
[Reading:] 

UNIVERSITY  CLUB, 
FIFTH  AVENUE  AND  FIFTY-FOURTH  STREET, 

March  4,  1908. 

DEAR  MR.  FINLEY:  I  saw  Brownell  of  the  Erie  this  afternoon  in  connection 
with  the  C.  N.  O.  &  T.  P.  stock  question.  It  is  pitiful  how  parallel  are  their  straits 
and  ours.  When  I  went  into  his  room  he  was  dictating  a  letter  to  a  commission 
explaining  why  the  Erie  could  not  build  a  new  station  somewhere,  and  he  told  me 
that  Mr.  Underwood  has  to-day  been  talking  to  committees  of  employees  proposing 
wage  reduction,  to  be  met  by  the  same  stereotyped  refusal  we  have  all  had.  They  are 
now  meditating  appeal  for  mediation  under  the  Erdman  law  not  because  they 
expect  any  relief,  but  to  avoid  the  horns  of  the  dilemma,  which  are  strike  or  con- 
tinued high  pay.  Brownell  says  that  if  there  is  a  strike  there  will  be  receivership 
in  a  week,  while  if  there  is  no  strike  there  may  be  no  receivership  for  two  weeks. 
Seriously,  they  are  up  against  the  same  proposition  we  are,  with  maturing  capital 
obligations,  absolutely  no  public,  market,  and  despairing  bankers.  What  this  spring 
may  bring  forth  for  us  all,  God  knows.  I  still  hope,  however,  to  find  the  money 
to  carry  us  along  at  least  until  the  July  1  payments.-  It  is  difficult  to  decide  what 
is  best  for  the  property  in  this  morass  where  we  are  floundering. 

Yours, 

F.  H. 

The  result  of  that  winter  was  a  conference  at  the  residence 
of  Mr.  J.  P.  Morgan,  Jr.,  on  April  11,  1908.  At  that  confer- 
ence Mr.  J.  P.  Morgan,  Jr.,  and  his  partners,  Mr.  Charles  Steele, 
Mr.  E.  T.  Stotesbury,  Mr.  George  W.  Perkins  were  present,  and  I 
met  them.  What  was  sought  to  be  determined  was  whether  it  was 
possible  to  do  anything  to  carry  the  Southern  Railway  over  or  whether 
the  Southern  Railway  should  be  allowed  to  go  under.  You  can  well 
understand  that  I  attempted  to  be  eloquent  on  that  occasion.  I  was 
very  cheerful  about  the  future.  As  my  friend  Steele  remarked,  my 
"sentiments  were  good  ones  to  have  when  you  want  to  borrow  money; 
they  cheer  if  they  do  not  inebriate."  But  I  am  glad  to  say  that  the 
result  of  that  conference  was  that  those  gentlemen  pledged  the  firm  of 
J.  P.  Morgan  &  Co.  to  see  us  through,  and  to  find  ways  and  means  to 
provide  money  to  get  us  "over  the  hill,"  and  they  did. 

Senator  Chilton :  You  did  not  mind  using  the  word  "psychological" 
in  that  discussion,  then,  did  you? 

Mr.  Harrison:  No,  sir.  [Laughter.]  In  May,  1908,  following  that 
conference,  we  created  an  issue  of  $15,000,000  of  convertible  6  per  cent, 


28      - 

three-year  notes — a  most  extraordinary  thing.  They  had  every  device 
that  could  be  suggested  put  into  them  to  make  them  marketable.  They 
were*  secured  by  development  bonds,  by  some  Virginia  &  Southwestern 
Railway  bonds;  by  some  Tennessee  Central  bonds,  which  we  had,  and 
various  things.  They  were  callable,  and  they  were  convertible  into 
development  bonds  at  a  price,  but  anyway,  they  were  sold,  and  the  money 
got  us  over  the  difficulties. 

Mr.  Lyon:  What  did  you  get  for  those,  Mr.  Harrison? 

Mr.  Harrison:  We  got  97  for  those. 

Mr.  Lyon:  Did  that  exclude  commission? 

Mr.  Harrison :  That  was  net  to  the  company. 

Mr.  Lyon :  Do  you  know  what  the  commission  was  on  those  bonds, 
Mr.  Harrison? 

Mr.  Harrison :  Well,  the  w|ay  I  have  dealt  with  J.  P.  Morgan  &  Co. 
in  selling  securities  has  been  usually  to  get  them  to  tell  me  what  they 
think  they  can  sell  them  for,  and  then  allow  not  exceeding  2  per  cent 
commission.  I  do  not  remember  in  this  case  whether  that  was  the 
process  by  which  we  arrived  at  97  or  not,  but  that  was  the  usual 
practice. 

Senator  Chilton:  You  mean  to  say,  then,  that,  commission  and  all, 
they  netted  the  company  97? 

Mr.  Harrison :  Yes.  If  they  sold  those  bonds  at  99,  we  sold  them  to 
them  at  97,  and  they  got  two  points  as  their  commission. 

We  had  to  face  the  approaching  maturity  of  those  $16,000,000  of 
5  per  cent  five-year  bonds  which  Mr.  Spencer  had  created,  and  in  1909 
our  situation  had  very  materially  improved.  I  did  not  state  that  I  had 
the  memorandum  here ;  that  the  aggregate  of  the  maturing  obligations 
which  we  faced,  after  Mr.  Spencer's  death,  was  about  $55,000,000,  which 
had  to  be  taken  care  of  in  the  next  few  years  and  for  which  he  had 
provided  about  $20,000,000. 

Mr.  Lyon:  How  many  years? 

Mr.  Harrison :  In  three  years. 

In  1909  the  market  conditions  had  materially  improved.  Our  own 
situation  had  improved;  our  earnings  had  picked  up;  the  results  of  the 
economies  Mr.  Finley  was  practicing  were  apparent;  and  we  had  an 
increasing  income  to  show,  and  our  friends  made  a  tremendous  effort 
and  accomplished  the  sale  of  $40,000,000  of  our  development  and  gen- 
eral mortgage  bonds — namely,  the  bonds  which  were  pledged  under 
those  6  per  cent  notes  and  the  bonds  which  were  reserved  for  the  five- 
year  bonds. 

Mr.  Thorn:  Mr.  Harrison,  to  interrupt  you  there  one  minute,  was 
not  one  of  the  economies  that  Mr.  Finley  put  into  operation  a  10  per 
cent  cut  upon  the  officers  of  the  company? 

Mr.  Harrison:  It  was. 

Those  development  bonds  which  had  previously  sold,  the  first  issue 
at  87,  we  sold  in  1909  practically  $40,000,000  of  those  bonds  to  take 
care  of  our  maturing  obligations — $5,000  in  February,  1909,  at  80; 
$500,000  in  March,  1909,  at  75;  $20,833,000,  April,  1909,  at  75; 
$5,000,000,  April,  1909,  at  80;  and  $14,995,000  in  May,  1909,  at  80. 


29 

Those  were  the  4  per  cent  bonds.  Those  are  the  bonds  that  are 
selling  at  73  today. 

The  result  of  all  that  was  that  we  funded  $31,000,000  short-term 
obligations  in  1909,  and  we  were  "over  the  hill." 

Those  difficult  financial  operations  created  a  situation  which  brought 
it  about  that  during  Mr.  Finley 's  administration  we  did  not  have  one 
cent  of  capital  to  apply  to  any  new  development  on  the  Southern  Rail- 
way. The  new  capital  which  was  provided  was  applied  to  take  care 
of  existing  obligations. 

Mr.  Douglas:  Throughout  his  entire  administration? 

Mr.  Harrison :  Throughout  his  entire  administration,  with  the  single 
exception  of  equipment.  We  were  able  to  sell  equipment  obligations 
at  various  times  during  Mr.  Finley's  administration,  and  we  kept  up, 
to  the  extent  of  our  ability,  our  obligations  to  provide  new  equipment 
in  that  way,  but  it  is  a  fact  that  Mr.  Finley  never  had  any  new  money 
to  do  anything  that  he  planned  to  do.  He  was  paying  for  the  things 
which  had  been  planned  and  which  were  begun  in  the  previous  ad- 
ministration. 

To  go  briefly  through  the  rest  of  the  financial  history:  In  February, 
1910,  there  were,  first,  $15,000,000  of  three-year  notes  matured,  and 
were  redeemed,  $10,000,000  being  extended  to  1913 ;  in  February,  1913, 
the  remaining  $10,000,000  of  notes  of  1907  matured,  when  $5,000,000 
were  retired,  and  $5,000,000  were  extended  for  three  years. 

As  a  result  of  the  financial  operations  from  1906  to  1913  there 
accrued  a  discount  amounting  to  $12,951,000;  and  during  Mr.  Finley's 
administration  all  of  that  was  charged  off  through  profit  and  loss. 

MR.    FINLEY^S    ADMINISTRATION    ONE   OF   BUILDING    CREDIT    AND 
ORGANIZATION. 

To  come  back  to  what  Mr.  Finley  did  for  the  improvement  and 
betterment  of  the  property — when  I  say  that  he  had  no  new  money,  I 
said  that  he  had  no  new  capital — he  managed  the  property  extremely 
well,  and  produced  a  surplus  income  each  year  during  his  administra- 
tion; he  was  able  to  apply  that  surplus  income  to  improvements  and 
betterments  in  an  amount  during  that  seven  years  of  approximately 
$31,000,000,  plowed  into  the  property. 

Mr.  Thorn:  Was  there  not  during  a  considerable  portion  of  that 
time  a  suspension  of  dividends? 

Mr.  Harrison:  Yes,  of  course,  from  the  time  of  the  panic  on 
dividends  were  suspended,  and  they  were  not  immediately  resumed 
again;  and  then  only  in  part  until  the  growth  of  the  income  during 
Mr.  Finley's  administration  made  it  possible  to  do  the  things  which 
he  was  trying  to  do,  and  at  the  same  time  leaving  something  to  be  paid 
to  the  stockholders,  as  we  all  felt  they  were  entitled  to. 

Mr.  Thorn:  Preferred  stockholders? 

Mr.  Harrison:  Preferred  stockholders  only.  With  this  $31,000,000 
plowed  into  the  property,  Mr.  Finley  was  able  to  do  a  great  many  things. 
The  growth  and  development  in  the  property  during  that  period  is 


30 

apparent  everywhere.  Mr.  Firiley  was  not  able  to  spend  any  money  in 
large^  sums  on  any  one  thing;  he  was  not  able  to  undertake  any  terminal 
developments  anywhere;  he  had  the  obligation  of  all  these  lines  of 
railroad  on  his  hands;  he  had  the  obligation  of  a  great  many  different 
kinds  of  industries  to  be  provided  for;  he  had  the  obligation  of  duty  to 
an  entire  territory,  and  he  meted  out  the  sums  of  money  which  he  had 
available  for  improvements  from  time  to  time  here  and  there,  completing 
station  buildings,  completing  sidetracks,  and  extending  doubletrack,  doing 
all  the  things  which  have  made  the  Southern  Railway  grow  during 
this  period,  but  he  never  was  able  to  undertake,  as  he  wanted  to  do  so 
often — I  have  heard  him  long  for  the  money  to  undertake  some  terminal 
developments  at  different  points  in  the  South.  He  never  had  the  money 
in  large  enough  quantity  to  do  that. 

If  we  may  characterize  Mr.  Spencer's  administration  as  "making 
the  map  of  the  Southern,"  we  might  characterize  Mr.  Finley's  adminis- 
tration as  one  of  "building  credit  and  organization."  He  built  credit. 
The  result  was  that  as  soon  as  the  poor  man  was  dead,  and  I  became 
president,  I  borrowed  $10,000,000  to  go  and  do  those  things  that  he 
wanted  to  do  so  much — that  was  the  credit  he  had  built.  He  did  more 
than  that;  he  built  organization.  I  believe  that  the  Southern  Railway 
Co.  has  as  good  and  efficient  and  loyal  and  well-trained  and  as  patriotic 
an  organization  today  as  any  railroad  in  the  country.  That  has  been 
built  during  Mr.  Finley's  administration ;  and  I  say  that  with  the  greatest 
respect  to  Mr.  Spencer.  When  Mr.  Spencer  took  over  all  f1iese  roads 
that  he  bought,  what  did  he  have?  The  railroads  in  our  territory  were 
entirely  inadequate  in  the  modern  sense  until  recently.  I  do  not  mean 
merely  railroads  of  the  Southern  Railway,  but  all  railroads  in  the  South. 
Why?  Because  the  density  of  traffic,  the  density  of  population,  the 
things  that  make  a  railroad  grow,  have  not  existed  in  the  South  until 
recently.  The  collection  of  railroads  which  Mr.  Spencer  made  was  a 
collection  fit  to  go  into  a  museum.  They  were  strongly  located  rail- 
roads; that  is,  they  were  between  communities  that  developed  into  the 
industrial  South.  But  they  had  to  be  built  from  the  moment  they  were 
taken  hold  of.  Look  at  the  map.  The  map  is  the  same  today  as  it  was 
then,  but  the  railroads  are  very  different.  They  were  short  railroads. 
They  were  pieced-together  railroads — a  little  railroad  to  serve  a  local 
traffic  has  no  terminals,  and  I  think  if  I  had  my  choice  between  terminal 
and  running  track,  I  would  take  the  terminal  every  time. 

You  can  make  money  with  terminals;  you  can  do  it  both  by  get- 
ting traffic  and  by  facilitating  the  movement  of  traffic.  When  the  train 
gets  out  on  the  running  track,  it  is  off,  and  you  can  keep  it  going,  but 
the  congestion  always  comes  at  the  terminals.  When  there  is  a  volume 
of  traffic  greater  than  your  capacity  to  handle,  you  see  it  at  the  ter- 
minals, and  there  you  find  the  terminal  expense  running  away  from  you. 
The  completing  of  terminals  was  the  first  thing  that  Mr.  Spencer  had 
to  provide  for  his  aggregation  of  railroads.  He  had  to  iron  them  out 
into  a  complete  whole,  and  that  meant  building  terminals. 

The  Chairman:  Mr.  Harrison,  if  it  will  not  interrupt  you,  we  will 
now  take  a  recess  and  meet  again  at  3  o'clock. 


31 

AFTER  RECESS. 

At  the  expiration  of  the  recess  the  sub-committee  assembled. 

The  Chairman :  Proceed. 

Mr.  Thorn:  Mr.  Harrison,  will  you  please  proceed  with  your  state- 
ment? 

Mr.  Harrison :  When  we  adjourned  for  recess,  I  had  been  discussing 
the  financial  history  of  the  Southern  Railway,  showing  how  that  was  re- 
sponsible for  what  the  Southern  Railway  has  done  and  what  it  has  not 
done.  I  showed  that  the  difficulties  of  the  Company  were  brought  about 
by  the  expansion  ending  in  1906,  and  the  necessity  of  providing  for 
the  capital  obligations  assumed  at  that  time.  I  showed  also  what  kind 
of  railroads  we  acquired ;  in  other  words,  the  necessity  for  improvement 
of  them,  as  part  of  our  financial  problem. 

THE    PHYSICAL   DEVELOPMENT   OF   THE   SOUTHERN^    LINES. 

To  show  what  we  accomplished  in  the  way  of  improvement,  I  would 
like  to  read  a  page  of  a  statement  which  I  prepared,  to  be  issued  by  the 
voting  trustees  on  the  dissolution  of  the  voting  trust  on  July  1st,  last. 
In  this  circular,  which  has  been  published,  is  rehearsed  what  has 
happened  to  the  Southern  Railway  in  the  South  during  the  20  years 
of  the  history  of  that  voting  trust.  What  I  want  to  read  is  the  para- 
graph about  physical  development.  (Reading:) 

"As  the  result  of  the  financial  plans  outlined  above  and  the 
policy  followed  during  the  early  years  of  the  history  of  the  Com- 
pany of  making  additions  and  betterments  to  the  property  through 
operating  expenses  and  income,  expenditures  have  been  made  for 
additions  to  the  Company  property  from  July  1,  1894,  to  July  1, 

1913,  as  follows: 

> 

BETTERMENTS  THROUGH  NEW  CAPITAL: 

New   Equipment    $35,539,826.71 

Additions  and  Betterments,  such  as  double  tracks,  side  and. 
passing    tracks,    terminals,    yards,    stations,   heavier    rail, 

bridges   and  improved  buildings 44,263,175.89 

Real  Estate— Right  of  Way 3,869,041.04 

Construction  of  new  lines  and  extension  of  existing  lines. .     10,731,421.52 


$94,403,465.16 
BETTERMENTS  THROUGH  INCOME: 

Various  improvements,  additions,  and  betterments,  the  cost 
of  which  was  charged  against  operating  expenses  or 
income,  representing  the  expenditures  over  and  above 
ordinary  maintenance  expenses,  of  approximately 30,000,000.00 


Total    (say) $124,403,465.16 

These  expenditures  have  secured  results  of  physical  develop- 
ment which  may  be  stated  generally  as  follows : 

On  June  30,  1895,  the  entire  operating  mileage  was  single  track. 
On  June  30,  1913,  385.39  miles  of  double  track,  largely  equipped 


32 

with  automatic  signals,  had  been  provided  on  grades  and  alignment 
substantially  revised  in  the  interest  of  economical  operation,  and  in 
addition  the  ratio  of  side  track  mileage  to  total  main  line  miles 
operated  excluding  trackage  rights,  had  increased  from  16.52%  in 
1895  to  35.02%  in  1913. 

All  the  old  iron  rail  in  track  has  been  replaced  with  steel  of 
modern  section  and  increased  weight. 

Wooden  bridges  have  been  generally  replaced  with  steel 
structures. 

Many  of  the  principal  terminals,  both  passenger  and  freight, 
have  been  enlarged  and  reconstructed,  and  modern  freight  classifi- 
cation yards  and  terminals  have  been  provided  at  several  places. 

Modern  shops  have  been  constructed  at  Coster,  Tenn.,  and  at 
Spencer,  N.  C,  and  existing  shops  at  other  points  have  been  enlarged 
and  modernized. 

There  is  much  more  work  of  this  general  character  to  be  un- 
dertaken to  keep  the  plant  abreast  of  the  commerce  which  it  may 
be  expected  to  handle. 

The  rolling  stock  equipment  has  been  increased  as  shown  by 
the  following  statement: 

1895  1913 

Locomotives 623  1,632 

Passenger-Train  Cars   487  1,157 

Freight-Train    Cars    13,924  49,512 

Freight-Train  Cars  per  mile  of  road  operated 4  7 

The  new  equipment  provided  is  of  largely  increased  power  and 
capacity  and  of  modern  construction. 

That  is  largely  the  accomplishment  of  Mr.  Finley,  these  improve- 
ments. Though  many  of  them  were  begun  during  Mr.  Spencer's  ad- 
ministration. 

THE  PRESENT  POLICY  OF  THE  SOUTHERN. 

Before  passing  on  to  the  next  question,  I  would  like  to  add  that  the 
policy  of  the  company  today  and  for  the  future,  so  long  as  I  have  any- 
thing to  do  with  it,  is  not  more  railroads,  but  better  railroads.  We  have 
during  this  last  winter  provided  $10,000,000,  to  be  invested  in  terminals. 
We  have  also  made  financial  arrangements  to  double  track  our  entire 
main  line  from  Washington  to  Atlanta,  649  miles;  and  I  have  said  to 
every  one  who  has  proposed  that  we  should  buy  a  railroad  or  build  a  new 
railroad  that  we  were  going  to  spend  our  money  and  resources  in  im- 
proving the  railroads  we  have  until  they  are  first-class  railroads  in  every 
respect,  as  some  of  them  are  today. 

FOREIGN   HOLDERS   OF   SOUTHERN   STOCK. 

In  discussing  this  morning  the  names  of  individuals  whom  it  has 
been  charged  controlled  the  policy  of  the  Southern  Railway,  I  thought, 
as  I  was  testifying,  that  it  might  be  of  interest  to  know  who  does  con- 
trol the  Southern  Railway,  and  from  the  list  of  stockholders  prepared 


33 

at  the  dissolution  of  the  voting  trust  I  have  since  obtained,  and  now  pro- 
duce a  statement  of  certain  large  holdings  of  foreign  concerns  of  the 
voting  trust  certificates,  with  respect  to  the  common  stock  of  the  South- 
ern Railway  as  shown  by  the  stock  ledger  of  June  8,  1914.  This  is  a  list 
of  seven  stock  exchange  houses  in  London  and  two  in  Amsterdam,  hold- 
ing together  392,420  shares  of  the  common  stock,  or  32.7  per  cent  of  the 
entire  $120,000,000  of  the  common  stock  of  the  company.  I  do  not  know 
who  those  stock  exchange  houses  represent,  but  the  stock  stands  in  their 
names. 

Mr.  Thorn:  In  speaking  of  that  list,  Mr.  Harrison,  I  understand 
you  to  be  giving  a  group  of  those  that  appear  as  large  holders.  Do  you 
mean  to  suggest  that  those  men  actively  control  the  policy  of  the  South- 
ern Railway? 

Mr.  Harrison:  I  do  not.  I  do  not  know  any  of  them  myself.  I 
never  have  had  any  communication  with  them.  They  are  simply  names 
to  me,  and  they  are  names  on  our  stock  list  of  those  holding  the  largest 
amounts  of  our  stock. 

(The  list  of  certain  large  foreign  stockholders  submitted  by  Mr. 
Harrison  is  in  words  and  figures  as  follows:) 

Statement  of  certain  large  holdings  by  foreign  concerns  of  voting  trust  certifi-* 
cates  with  respect  to  common  stock  of  Southern  Railway  Co.,  as  shown  by 
the  stock  ledger  as  of  June  8,  1914. 

XT  AJJ  Number  of 

Name.  Address.  Shares> 

Leon  Bros London,  England 103,340 

Huggins  &  Clark do 66,640 

Marks,  Bulteel,  Mills  &  Co do.... 61,060 

R.  Raphael  &  Sons do 60,800 

•S.  Japhet  &  Co do 31,800 

J.  S.  Morgan  &  Co do 16,610 

Stoop  &  Co , do 10,170 

Adolph  Boissevain  &  Co Amsterdam,  Holland 29,640 

Arnold   Gilissen    .                 do 12,360 


392,420 
Per  cent  of  total  issue,  32.7. 

THE   VIRGINIA   AND   SOUTHWESTERN    PURCHASE. 

I  come  now  to  the  question  of  the  purchase  and  development  of 
the  Virginia  &  Southwestern  Railway.  In  enumerating  the  names  of 
those  whom  it  was  charged  controlled  the  policy  of  the  Southern  Rail- 
way I  did  not  mention  Mr.  McHarg.  There  has  been  a  good  deal  of 
testimony  that  Mr.  McHarg  influenced  and  controlled  the  policy  of  the 
Southern  Railway  Co. 

On  May  1,  1906,  Mr.  Spencer  made  a  contract  with  Mr.  McHarg — 
that  contract  was  nominally  with  Oliver  H.  Payne,  Grant  B.  Schley, 
and  H.  K.  McHarg,  for  the  purchase  of  the  $2,000,000  capital  stock 
of  the  Virginia  &  Southwestern  Railway  Co.  at  $200  per  share,  or 
$4,000,000  in  all.  The  consideration  was  to  be  paid  in  instalments. 
On  June  15,  1906,  $1,000,000,  and  the  remainder  at  six-month  inter- 


34 

vals,  instalments  of  $500,000,  with  interest  at  5  per  cent,  running  up  to 
July  1,  1909. 

That  contract  was  ratified  by  the  board  of  directors  of  the  South- 
ern Railway.  There  was  a  good  deal  of  criticism  in  the  board  of  the 
price  paid  at  the  time  the  contract  was  ratified,  just  as  there  has  been 
at  this  hearing. 

I  asked  Mr.  Spencer  why  he  paid  $200  a  share  for  that  stock  when 
he  handed  me  the  contract  or  the  memorandum  for  the  contract.  His 
answer  was  that  he  could  not  get  it  for  less;  that  he  wanted  the  rail- 
road ;  that  there  was  competition  for  the  purchase  of  the  railroad ;  that 
he  deemed  it  necessary  to  the  integrity  of  the*  Southern  Railway  system 
that  an  entrance  should  be  assured  to  the  Appalachian  field  by  the 
Virginia  &  Southwestern  Railway.  That  is  all  I  know  about  the  reason 
why  $200  a  share  was  paid  for  that  stock. 

It  may  be  appropriate  to  say  here  that  we  have  spent  $4,000,000 
on  additions  and  extensions  of  that  road  and  improvements,  and  that 
it  is  today  earning  the  interest  not  only  on  that  $4,000,000  but  upon 
the  $2,000,000  more  in  the  equipment  trust,  upon  the  original  $2,000,000 
of  bonds  that  were  on  the  property,  and  is  paying  us  10  per  cent  on  our 
$2,000,000  of  stock;  in  other  words,  5  per  cent  on  our  investment  in  the 
stock.  We  are  carrying  2,000,000  of  tons  of  coal  and  coke  over  that 
railroad  today.  We  have  added  very  largely  to  the  equipment  of  it; 
we  have  developed  the  railroad,  and  we  believe  it  to  be  a  satisfactory 
investment  as  it  stands,  whatever  the  price  was  in  the  beginning. 

Mr.  Thorn:  In  other  words,  Mr.  Harrison,  in  the  development  of 
the  Southern  Railway  system,  a  thing  which  might  not  be  wanted  at  all 
at  one  time  might  subsequently  be  desired,  and  the  fact'  that  we  refused 
to  buy  it  at  one  time  at  a  lesser  price,  when  we  did  not  want  it,  could 
not  control  the  policy  in  getting  it  at  the  lowest  price  we  could  when 
it  became  an  essential  part  of  our  program? 

Mr.  Harrison:  It  did  not  control,  and  I  have  entire  confidence  in* 
the  integrity  of  Mr.  Spencer's  motive  in  buying  it  at  the  price  he  did. 

I  met  Mr.  McHarg  for  the  first  time  after  that  contract  was  made. 
It  was  given  to  me  to  work  out  the  contract  with  him,  and  I  saw  Mr. 
McHarg  frequently  from  that  time,  May,  1906,  until  July  1,  1908, 
when  we  completed  our  payments. 

Mr.  McHarg  is  one  of  the  hardest  traders  that  ever  anybody  came 
in  contact  with.  He  is  an  able,  strong,  vigorous  man.  He  takes  care 
of  himself  wherever  he  can,  and  he  does  it  very  well,  but  he  is  a  fair 
man.  He  is  a  man  who  has  never  been  underhanded  in  my  experience 
with  him,  and  he  had  me  by  the  throat  in  the  winter  of  1908 — I  never 
failed  to  respect  him;  never  knew  him  to  do  an  unworthy  thing;  I 
never  knew  him  to  suggest  an  unworthy  thing. 

One  of  our  difficulties  in  the  winter  of  1908  was  that  we  had  to 
pay,  on  the  1st  of  January,  1908,  $500,000  to  Mr.  McHarg  under  our 
contract,  and  he  was  inflexible ;  and  to  make  another  payment  of  $500,000 
on  the  first  of  the  following  July.  And,  more  than  that,  we  had  con- 
tracted to  complete  the  Black  Mountain  Railroad  from  Appalachia  to 


35 

the  Black  Mountain  field,  which  cost  $1,000,000,  and  we  had  contracted 
to  complete  the  Holston  River  line,  from  Moccasin  Gap  to  Rogersville 
branch  of  the  Southern  Railway,  which  cost  $2,000,000  or  more.  In 
addition  to  paying  for  the  stock,  we  had  to  provide  the  capital  for  those 
construction  expenditures.  We  suspended  a  great  deal  of  construction, 
but  Mr.  McHarg  was  insistent  during  all  that  winter  that  we  should  go 
on  with  the  construction  on  the  Virginia  &  Southwestern ;  that  we  should 
provide  the  facilities  to  take  the  coal  out  of  that  region  into  the  south- 
east. He  never  let  up  on  us  on  that,  and  we  did  not  have  the  money. 
We  had  no  source  of  providing  the  money,  and  that  was  one  of  our 
principal  difficulties  during  that  time.  Finally,  as  I  have  testified  this 
morning,  we  did  make  provision  for  $15,000,000  in  May  of  1908,  which 
enabled  us  to  face  the  1st  of  July  and  Mr.  McHarg,  and,  with  this 
assurance,  then  and  there  we  made  a  new  bargain  with  Mr.  McHarg. 
We  had  funded  all  of  the  construction  expenditures  on  the  Virginia  & 
Southwestern  Railway  in  a  new  mortgage,  called  the  "first  consolidated 
mortgage,"  which  was  created  on  April  29,  1908,  and  provided  for  a 
total  authorized  issue  of  $7,000,000  of  bonds,  of  which  $2,000,000  were 
reserved  for  the  old  first  mortgage  bonds,  and  the  remaining  $5,000,000 
were  to  be  used  for  purposes  which  were  enumerated  in  the  mortgage, 
and  which  were  the  construction  I  have  been  testifying  about,  and 
$1,000,000  provision  for  equipment. 

We  agreed  with  Mr.  McHarg  that  on  the  1st  of  July,  1908,  we 
would  anticipate  the  three  final  payments  on  his  stock  and  pay  him 
$1,500,000,  and  at  the  same  time  he  agreed,  and  we  felt  that  we  had 
accomplished  something  when  he  did,  to  buy  the  first  $1,500,000  of 
the  new  Virginia  &  Southwestern  bonds.  In  other  words,  to  put  that 
much  of  our  money  back  into  the  property.  The  new  bonds  were  not 
marketable  at  the  time,  but  Mr.  McHarg  knew  them  and  knew  what 
the  property  was,  and  was  willing  to  do  it.  He  paid  90  for  those  bonds, 
but  in  doing  that  he  stipulated  that  $1,000,000,  which  was  re- 
served under  the  mortgage  for  additions  and  betterments  to  be 
issued  thereafter,  should  be  applied  upon  the  completion  of  the 
Holston  River  line.  That 'was  the  condition  of  his  purchase  of  those 
bonds.  That  condition  was  ultimately  carried  out.  On  the  1st  of  July, 
1908,  Mr.  Finley  was  elected  president  of  the  Virginia  &  Southwestern 
Railway.  Prior  to  that  time  the  operation  and  management  of  the 
Virginia  &  Southwestern  Railway  had  been  left  in  Mr.  McHarg's  hands. 
We  had  not  paid  for  the  stock,  and,  although  the  contract  provided  that 
we  might  assume  the  management  if  we  wanted  to,  we  were  constantly 
for  the  two  years  after  Mr.  Spencer's  death  on  the  edge  of  whether  it 
would  not  be  better,  in  the  desperate  straits  the  Southern  was  in  then,. 
to  forfeit  what  we  had  paid  and  let  it  go;  and,  having  that  possibility 
in  view,  we  did  not  ask  Mr.  McHarg  to  give  up  the  management  of  that 
railway  and  ourselves  assume  that  responsibility.  When  we  paid  for  it 
we  did  assume  the  responsibility  for  it,  and  we  then  changed  the  policy 
of  that  railroad  in  some  respects.  For  a  time — for  nearly  two  years 
after  July  1,  1908 — Mr.  Finley  and  I  were  the  only  Southern  Railway 


36 

officers  who  were  officers  also  of  the  Virginia  &  Southwestern  Railway. 
The  officers  who  had  been  in  charge  of  it,  with  the  exception  of  Mr. 
Newton,  who  as  vice-president  in  charge  represented  Mr.  McHarg, 
continued  to  operate  it.  Those  officers  became  practically  Southern 
Railway  officers  and  most  of  them  are  in  our  organization  today. 

FUEL    PURCHASES    IN    THE    APPALACHIAN    DISTRICT. 

It  was  in  February,  1911,  that  the  operating  organization  of  the 
Southern  Railway  was  spread  over  the  Virginia  &  Southwestern  Rail- 
way. We  had  found  that  there  were  some  differences  of  opinion  be- 
tween the  local  management  of  the  Virginia  &  Southwestern  Railway 
and  the  local  management  of  the  Southern  Railway,  with  which  it 
connected,  and  we  deemed  in  the  interest  of  efficiency  of  management 
that  the  ranking  officers  of  the  Southern  Railway  should  have  their 
jurisdiction  spread  over  that  line,  and  that  was  done.  It  was 
then  that  the  general  manager  of  the  Southern  Railway  recom- 
mended the  purchase  of  fuel  coal  for  the  Southern  Railway 
from  the  Virginia  &  Southwestern  mines.  He  did  that  after 
tests  with  the  coal.  He  had  to  pay  a  fre:ght  rate  to  the  Virginia  &  South- 
western Railway,  as  compared  with  hauling  the  coal  from  Middles- 
boro  over  the  Southern  Railway.  Taking  Morristown  as  the  point  on 
the  map,  the  difference  was  the  difference  in  cost  between  $1.72  and 
$1.39.  The  quality  of  the  coal  was  considered.  The  coal  taken  was 
the  best  of  the  coal  in  the  Appalachian  region,  from  what  is  known  as 
the  Imboden  seam.  After  an  engine  test  scientifically  made  by  the 
mechanical  officers,  it  was  deemed,  and  it  has  been  ever  since  deemed, 
that  it  was  more  economical  to  pay  $1.72  for  that  coal  than  to  use  the 
other  at  $1.39,  and  on  the  experience  of  units  of  engine  efficiency, 
which  are  contained  in  the  reports  of  operations,  and  which  I  study  very 
carefully,  I  am  entirely  convinced  myself  that  that  conclusion  is  correct. 

THE  RATE  POLICY  OF  THE  SOUTHERN. 

I  will  say  a  word  about  the  rate  policy  of  the  Southern  Railway 
Co.  The  Southern  Railway  inherited  a  rate  policy  in  the  South  which 
was  almost  peculiar  to  the  South,  namely,  the  basing  point  system.  It 
was  a  system  which  dated  from  the  first  construction  of  the  railroads 
there.  It  was  a  system  by  which  a  lower  rate  was  made  to  a  competi- 
tive point,  usually  competitive  with  water  at  the  beginning,  than  was 
made  to  points  intermediate;  and  for  many  years,  as  the  long-and-short 
haul  clause  of  the  law  read,  it  was  justified  by  the  commission  and  by 
the  courts,  until  finally  the  law  was  changed.  That  system  of  rate 
making  had  the  advantage  of  building  up  distributing  points  in  the  South 
when  there  were  very  few  distributing  points  in  that  section.  It  was 
undoubtedly  a  policy  of  wisdom  at  the  time  in  the  result  that  it  had 
upon  the  South.  Whether  it  is  a  wise  policy  today  is  one  which  has 
been  settled  by  the  opinion  of  Congress  in  enacting  that  such  a  thing 
can  not  be  done. 


37 

Mr.  Thorn:  Not  an  absolute  prohibition  now? 

Mr.  Harrison:  No.  The  commission  has  the  power  to  vary  it.  I 
myself  look  forward  to  the  time  when  that  system  of  rate  making  will 
be  done  away  with.  I  believe  it  is  a  matter  of  statesmanship  to  ac- 
complish it. 

The  Southern  Railway  during  its  troubles  has  not  had  any  ability 
or  any  margin  to  make  any  experiments,  but  the  Interstate  Commerce 
Commission  is  working  on  it  now  and  the  railroads  are  working  on  it 
now,  and  I  hope  that  some  method  will  be  found  to  accomplish  the 
result  of  equality  of  advantages  in  the  communities  which  have  grown 
up  in  between  the  distributing  points  in  the  interval  and  at  the  same 
time  preserve  the  revenues  of  the  company. 

With  that  limitation,  which  has  caused  a  great  deal  of  agitation 
throughout  the  South,  that  we  were  unfair  in  favor  of  one  community 
as  compared  with  another,  that  there  were  discriminations,  we  have 
not  found  that  our  rates  are  objected  to  by  the  Southern  people.  I 
have  again  and  again  had  it  said  to  me  by  responsible  representatives 
of  communities,  "You  put  us  all  on  an  equality  and  we  do  not  care 
what  the  rate  is."  Our  rates  in  the  South  are  higher  than  the  rates 
in  the  East  and  the  Middle  West.  They  must  be  so,  because  our 
population  is  sparser,  our  traffic  is  not  as  heavy.  Somebody  has  to 
pay  for  the  transportation.  The  rates  have  been  adjusted  from  time 
to  time  and  have  been  adjusted  downward  steadily.  I  do  not  believe 
that  they  could  have  been  reduced  any  faster  than  they  have  been.  The 
first  object  of  the  rate  making,  as  I  have  understood  it — I  am  speaking 
of  a  policy,  for  I  am  not  a  technical  traffic  man — being  to  secure  the 
ability  of  the  industry  or  a  community  to  use  what  they  want  to  use  under 
an  adjustment  of  rates,  and,  in  the  second  place,  to  protect  the  revenue 
of  the  company  in  order  to  make  the  railroad  go.  Those  have  been 
our  limitations. 

THE    COAL   TRAFFIC   ON    THE    SOUTHERN. 

I  come  now  to  the  specific  question  of  the  coal  traffic.  I  showed 
this  morning,  by  a  statement,  how  the  coal  traffic  in  bituminous  coal 
had  steadily  grown  on  our  railroad  almost  ton  by  ton  with  the  manu- 
facturing and  general  merchandise  business  on  the  railroad.  I  showed 
this  morning  how  our  prime  interest  in  the  coal  business  had  always 
been  to  provide  coal  for  the  industries  local  on  our  lines.  I  showed  how 
the  hydroelectric  development  in  the  southeast  had  affected  our  coal 
business,  or  we  thought  it  had  affected  it,  and  it  made  us  hesitate  in 
provision  for  the  future.  At  the  same  time  there  was  a  competing 
railroad  built  into  the  heart  of  our  territory,  the  C.  C.  &  O. 

Senator  Chilton:  What  is  that? 

Mr.  Harrison :  It  is  the  Carolina,  Clinchfield  &  Ohio,  what  is  known 
as  the  Clinchfield  road.  It  was  built  from  this  Appalachian  region, 
which  we  have  been  talking  about,  to  Spartanburg,  into  the  middle  of 
the  mill  district  of  the  Carolinas  on  our  line. 

That  railroad  was   immediately  a  competitor  with  us  in  the  car- 


38 

riage  of  coal,  and  a  serious  competitor.  I  said  to  Mr.  Potter,  the  presi- 
dent of  that  railroad,  the  other  day,  and  I  sincerely  meant  it,  and  I  say 
so  now,  that  however  much  the  construction  of  that  road  hurt  us  at  the 
time,  I  now  regard  it  as  a  blessing  to  us,  because  it  relieved  us  of  a 
responsibility  which  we  were  not  at  the  time  in  a  position  to  meet  our- 
selves. We  could  not  at  that  time  have  provided  either  the  equipment 
or  the  railroad  to  move  the  amount  of  coal  for  which  the  demands 
were  growing  in  that  region ;  and  while  it  took  business  away  from  us, 
it  enabled  the  mill  district  in  the  Carolinas  to  secure  coal  and  grow, 
and  that  is  our  interest  in  the  future  in  the  south. 

Senator  Chilton :  Was  that  road  built  or  not  to  develop  some  large 
coal  holdings  that  the  promoters  of  the  road  owned? 

Mr.  Harrison:  It  is  our  understanding  that  they  are  much  the  same 
people  owning  the  railroad  who  own  the  coal. 

Senator  Chilton:  Do  you  know  who  they  are? 
Mr.  Harrison:  Well,  merely  by  information. 
Senator  Tillman :  The  company  owns  both. 

Senator  Chilton :  I  am  speaking  of  the  men  who  originally  built 
it.  .  As  I  understand,  several  men  bought  several  hundred  thousand 
acres  of  coal  land  in  there  and  built  that  railroad.  Mr.  Winder  went 
there  to  develop  that  coal  and  built  that  road  in  there,  and  Winder 
used  to  be  down  in  our  country,  and  I  understood  he  left  there  and 
built  this  Clinchfield  road/ 

Mr.  Harrison:  He  was  there  at  the  beginning  or  inception  of  that 
railroad. 

Answering  your  question,  I  have  'understood  Blair  &  Co.,  of  New 
York,  and  Norman  B.  Ream  were  considerably  interested  in  that  prop- 
erty. I  have  never  seen  a  list  of  their  stockholders,  and  I  am  speaking 
merely  from  hearsay. 

Having  that  situation  of  the  necessity  of  providing  coal  for 
the  industries  on  our  own  lines,  having  these  setbacks  to  our 
coal  tonnage,  of  the  hydroelectric  development  and  the  construction 
of  the  C.  C.  &  O.,  we  were  about  able  to  hold  our  own.  As  we  came 
out  of  our  difficulties  and  emerged,  we  had  another  problem  on  our 
hands.  The  operators  on  the  Virginia  &  Southwestern,  all  of  them — 
Mr.  Dulaney  was  one  of  them — had  proposed  from  time  to  time  that 
it  was  necessary  for  the  large  development  of  that  field  to  provide  a 
terminal  for  tidewater  coal  at  Charleston  or  some  other  point  on  the 
South  Atlantic  coast.  We  were  never  convinced  that  the  time  had  come 
for  that  kind  of  a  development.  We  were  never  convinced  that  we 
were  able  to  provide  the  facilities  to  move  coal  over  our  railroad  in 
the  quantities  necessary  for  profitable  movement  or  to  provide  the  facili- 
ties at  Charleston  that  we  required.  That  demand  for  that  tidewater 
termjn?!  at  Charleston  increased  with  the  years.  Mr.  Wentz,  of  the 
Stonega  Co.,  urged  it  upon  us,  and  Mr.  Newton,  of  the  Virginia  Coal, 
Iron  &  Coke  Co.,  urged  it  upon  us.  Mr.  Dulaney  had  urged  it  upon  us. 
During  that  time,  in  1909,  negotiations  began  with  Mr.  Potter,  of  the 
C.  C.  &  O.  He  had  his  railroad  at  Spartanburg,  and  he  wanted  to  go 
on  to  Charleston  and  have  a  coal  terminal  and  have  a  coal  business 
at  Charleston. 


39 

One  of  the  things  which  held  us  back,  and  it  all  comes 
back  to  the  same  explanation  that  I  give  of  our  financial  situa- 
tion, was  the  physical  condition  of  our  railroad  between  the  Appa- 
lachian field  and  the  Charleston  terminal.  We  were  not  convinced  that 
a  lucrative  traffic  could  be  developed,  and  we  were  not  convinced  that 
we  could  handle  that  traffic  at  any  rate  which  would  move  the  coal  at  a 
profit.  To  illustrate  some  of  the  reasons  that  we  had  in  our  minds: 
The  distance  from  Appalachia  to  Charleston  on  our  railroad  and  the 
Virginia  &  Southwestern  is  478  miles.  The  distance  on  the  Chesapeake 
&  Ohio  from  its  assembling  point,  Thurmond,  to  Newport  News  is  381 
miles;  the  distance  on  the  Norfolk  and  Western  from  the  Pocahontas 
field  to  Lambert  Point  is  370  miles ;  from  another  region,  namely,  Norton 
to  Lambert  Point,  it  is  473  miles. 

The  distance  on  the  Virginian  Railway  from  their  coal  field  to  Nor- 
folk is  441  miles. 

THE    PHYSICAL    CHARACTERISTICS    OF   THE    SOUTHERN    AS    COMPARED    WITH 

THE    COAL    ROADS. 

The  mileage  is  one  thing  and  the  physical  characteristics  of 
a  railroad  are  another  thing.  The  Norfolk  &  Western  has  spent  a  great 
deal  of  money  very  intelligently  to  provide  facilities  for  moving  heavy 
tonnage  of  coal  straightaway  to  tidewater.  The  Chesapeake  &  Ohio, 
with  a  better  natural  grade,  in  the  first  instance,  has  done  a  good  deal  of 
that,  too.  They  have  got  good  railroads  today,  and  can  move  coal  very 
cheaply.  We  have  not  developed  a  coal  railroad  in  that  sense. 

Senator  Chilton.    The  Virginian  is  a  good  line? 

Mr.  Harrison:  The  Virginian  is  a  very  good  line.  I  have  some 
comparative  figures  about  the  Virginian  which  I  will  give  you. 

On  the  Southern  Railway  and  Virginia  &  Southwestern  line  there 
are  heavy  grades,  on  the  Virginia  &  Southwestern  amounting  to  as  much 
as  2y2  per  cent.  On  the  Southern  Railway  between  Bulls  Gap  and 
Charleston  there  are  maximum  grades  of  80  feet  to  the  mile. 

Senator  Tillman:  Going  south? 

Mr.  Harrison :  Going  south,  with  the  coal. 

Senator  Chilton :   You  are  speaking  of  your  own  line  ? 

Mr.  Harrison :  I  am  speaking  of  our  own  line  over  which  this  coal 
must  move  to  Charleston. 

These  grades  are  not  concentrated  at  any  one  point  and  the  line  is  a 
broken  one.  Between  Bulls  Gap  and  Spartanburg  we  have  several 
pusher  grades  and  the  maximum  load  that  can  be  obtained  is  about  1,600 
tons  per  train.  Between  Charleston  and  Spartanburg  the  ruling  grades  are 
approximately  35  feet  to  the  mile.  On  this  line  it  is  possible  to  handle 
about  2,400  or  2,500  tons  to  the  train. 

For  comparative  purposes  we  will  rake  the  Virginian  Railway.  This 
was  a  specially  constructed  railway  for  the  purpose  of  handling  coal  from 
the  coal  fields  to  tidewater,  and  at  heavy  expenditure  low  grades  were 
obtained  in  order  to  handle  the  traffic  at  the  minimum  transportation  cost. 
I  understand  that  the  railroad,  including  its  equipment,  cost  approximately 
$54,000,000  to  build,  which  is  approximately  $110,000  per  mile  for  actual 


40 

construction  of  the  single  track  line.  In  its  coal  assembling  district  it  has 
varying  grades,  some  of  which  are  as  high  as  2  per  cent.  It  has  a  pusher 
grade  about  twelve  miles  in  length,  for  which  they  have  provided  special 
equipment.  After  reaching  the  summit  of  the  Alleghanies  with  2  small 
pusher  grades,  the  maximum  grade  of  which  is  only  six-tenths  of  one  per 
cent,  they  have  about  365  miles  with  a  ruling  grade  of  two-tenths  of  one 
per  cent,  or  approximately  lO^  f£et  to  the  mile.  On  this  railway,  with 
motive  power  similar  in  size  to  our  mikado  engine — that  is  the  largest 
type  of  engine  which  we  use — they  are  able  to  handle  as  many  as  100 
coal  cars,  of  50  tons  capacity,  and  their  usual  train-load  is  90  cars,  or 
approximately  6,750  gross  tons  per  train 

Take  the  Norfolk  &  Western.  Their  principal  coal  field  is  the  Poca- 
hontas  field,  which  lies  a  short  distance  from  Bluefield.  Through  their 
coal  assembling  territory,  west  of  Bluefield,  they  have  maximum  grades 
of  about  two  per  cent.  On  these  grades  they  have  special  pusher  ar- 
rangements. From  Bluefield  to  tidewater  the  company  has  spent  large 
sums  of  money  and  they  have,  with  the  exception  of  the  grades  from 
Walton  to  Christiansburg,  reduced  the  grades  to  a  maximum  of  about  30 
feet  to  the  mile,  and  consequently  they  have  a  low  cost  of  handling  their 
coal  traffic. 

Even  the  grade  between  Walton  and  Christiansburg,  which  is  on  the 
dividing  mountains  between  the  waters  of  the  Atlantic  and  the  Mississippi, 
their  maximum  grade  is  one  per  cent.  In  order  to  obtain  its  favorable 
grades,  they  have  built  an  expensive  double  track  line  from  Roanoke  to 
Lynchburg,  and  have  also  built  an  expensive  cut-off  in  the  vicinity  of 
Petersburg.  With  these  improvements  they  are  able  to  run  coal  trains 
with  a  tonnage  of  from  4,000  to  6,000  tons. 

Next  take  the  Chesapeake  &  Ohio  Railway.  Their  coal  district  lies 
between  Thurmond  and  Handley.  This  railroad  has  the  most  favorable 
grades  from  its  coal  territory  in  the  New  River  district,  which  is  the  field 
where  most  of  the  tidewater  coal  originates.  It  has  a  maximum  grade 
eastbound  of  21  feet  to  the  mile  until  they  reach  the  mountains,  where 
it  is  increased  to  30  feet  to  the  mile.  From  the  summit  of  the  Alleghanies, 
near  Alleghany  Station,  they  have  practically  a  descending  grade  through 
Clifton  Forge  to  Newport  News,  and  they  are  able  to  handle  trains  of 
from  90  to  100  cars  without  difficulty,  or  from  6,000  to  7,000  gross  tons. 
From  Clifton  Forge  to  Newport  News  they  follow  clocely  the  valley  of  the 
James  River.  This  railroad  is  the  most  favorably  located  one  for  grades 
and  curvature  through  the  Alleghany  Mountains,  but  ven  on  fhis  location 
the  cost  of  getting  between  the  waters  of  the  Mississippi  and  the  waters 
of  the  Atlantic  was  a  very  bold  piece  of  work,  and  tremendously  expen- 
sive. "  It  is  currently  reported  that  it  cost  more  than  $200,000  per  mile  to 
build  through  these  mountains. 

In  general,  these  3  railroads — the  Virginian,  Norfolk  &  Western  and 
the  Chesapeake  &  Ohio,  have  specialized  on  this  coal  traffic.  They  have 
not  a  heavy  amount  of  passenger  service  and,  therefore,  handle  their 
freight  trains  at  low  speed,  which  permits  trains  to  be  loaded  to  their 
full  capacity.  They  are  in  competition  with  the  coal  fields  of  the  Balti- 
more &  Ohio  and  Pennsylvania,  which  are  nearer  tidewater  than  theirs 
and,  consequently,  they  have  been  compelled,  in  order  to  participate  in 


41 

this  "business,  to  get  the  maximum  train  loads  and  otherwise  specialize 
on  the  coal  'traffic. 

For  the  Southern  Railway,  with  its  diversified  traffic  and  diversified 
conditions,  it  has  not  been  possible  to  concentrate  its  efforts  on  the  coal 
traffic  without  seriously  injuring  its  ability  to  serve  the  other  traffic  which 
is  essential  to  the  country  which  it  serves.  Furthermore,  until  recently  the 
coal  mines  of  the  Southern  Railway  have  not  had  a  surplus  of  coal  which 
was  available  for  tidewater  movement.  The  domestic  market  was  avail- 
able and  better  prices  could  be  obtained  by  shipping  to  interior  points. 

The  distance  from  the  coal  fields  of  the  Southern  Railway  to  Nor- 
folk are  so  much  greater  than  any  other  line  that  it  is  not  feasible  to 
move  the  coal  from  those  mines  to  Norfolk  in  competition  with  the 
shorter  hauls  of  the  other  lines.  '  Even  to  Charleston  the  mileage  is  nearly 
20  per  cent  greater  from  the  Southern  Railway  coal  fields  than  the  coal 
fields  of  any  other  line  to  tidewater.  In  order  for  the  Southern  Railway 
to  handle  coal  to  Charleston  in  large  and  paying  quantities,  it  will  be 
necessary  for  large  sums  of  money  to  be  spent  in  reducing  grades,  im- 
proving curvature  and  building  cut-offs.  The  company  will  only  be  justi- 
iied  in  going  to  this  expense  when  it  is  fully  demonstrated  that  the  coal 
fields  of  Southwestern  Virginia  can  successfully  compete  with  those  of 
Pocahontas,  New  River  and  others,  and  that  the  mine  operators  are  will- 
ing to  ship  through  that  port  in  large  quantities. 

I  have  had  our  engineers  make  a  rough  estimate  of  what  it  would 
-cost  the  Southern  Railway  to  make  the  obvious  improvements,  on  its  lines 
from  Appalachia  to  Charleston  for  the  handling  of  coal  profitably.  This 
estimate  includes  a  terminal  at  Charleston.  The  aggregate  is  $11,300,000. 

Senator  Tillman :  Right  there,  Mr.  Harrison,  may  I  ask  you  a  ques- 
tion? Mr.  Thorn  on  Saturday  or  Friday  announced  as  the  policy  of  the 
Southern  Railway  and  that  policy  was  published  in  all  our  papers,  that  the 
Southern  Railway  is  going  to  build  coal  terminals  at  Charleston.  Is  that 
true? 

Mr.  Harrison :  That  is  the  fact ;  I  will  come  to  that. 

Senator  Tillman :  You  are  telling  us  what  it  is  going  to  cost. 

Mr.  Harrison:  I  want  you  to  realize  what  the  problem  is,  Senator. 

Senator  Tillman :  I  know  it  takes  money  to  build  railroads  on  the 
ievel  and  in  tunnels  through  mountains. 

Mr.  Harrison :  That  is  the  physical  problem. 

THE    CHARLESTON    COAL    TERMINAL. 

I  come  back  immediately  to  the  question  of  the  Charleston  terminal. 
'These  considerations  which  I  have  been  suggesting.  Senator  Tillman,  were 
largely  what  held  us  back  on  this  matter.  The  pressure  became  greater, 
•as  I  have  said,  and  Mr.  Finley  took  up  negotiations  with  Mr.  Potter  with 
regard  to  the  construction  of  a  terminal  at  Charleston,  with  the  under- 
standing that  the  C.  C.  &  O.  coal  would  move  over  the  Southern  Railway 
tfrom  Spartanburg  to  Charleston.  I  believe  the  correspondence  between 
Mr.  Finley  and  Mr.  Potter  has  been  introduced  in  evidence. 

Senator  Tillman:  Right  there,  if  I  may — the  people  of  Charleston 
.are  highly  elated  now  at  the  prospect  of  getting  the  CUnchfield  to  build 


42 

terminals  and  the  Southern,  too.  I,  myself,  do  not  believe  the  Southern 
is  going  to  build  there.  What  have  you  to  say  to  that?  You  have 
already  outlined  the  amount  of  money  it  is  going  to  cost. 

Mr.  Harrison:  Yes. 

Senator  Tillman:  Is  the  Southern  willing  to  put  that  money  there? 

Mr.  Harrison:  Not  to  put  the  $11,500,000  at  this  time,  but  it  has  put 
in  a  rate  to  Charleston  of  $1.40,  and  I  have  pledged  my  personal  word  to 
Mr.  Wentz  that  we  will  build  a  coal  terminal  at  Charleston,  with  one  unit 
of  sufficient  capacity  to  give  a  thorough  trial. 

Senator  Tillman :  What  do  you  mean  by  "one  unit"  ? 

Mr.  Harrison:  Enough  to  take  care  of  one  ship  at  a  time. 

Senator  Tillman:  How  long  will  it  take  to  load  a  ship? 

Mr.  Harrison:  I  am  not  able  to  answer  that.  We  have  engineers 
now  studying  the  physical  plans  on  that,  and  I  am  not  able  to  anticipate 
what  they  are  going  to  report  on  it. 

Senator  Tillman:  You  see  it  is  so  vital  to  the  prosperity  of  the  city 
of  Charleston  is  the  reason  I  am  so  much  concerned  about  it,  and  I  would 
like  to  have  correct  information  from  headquarters,  and  that  is  the  rea- 
son I  am  "butting  in"  here  and  asking  these  questions.  If  there  is  any 
man  alive  who  can  tell  me  just  what  the  Southern  Railway  is  going  to- 
do  you  ought  to  be  the  man,  unless  you  belong  to  somebody  else  and  can 
not  do  something  until  you  get  orders. 

Mr.  Harrison :  I  undertake  the  responsibility  of  telling  you  what  the 
Southern  Railway  will  do,  sir. 

Senator  Tillman:  I  felt  that  if  the  Clinchfield  is  going  to  build  ter- 
minals and  had  already  let  the  contract  the  Southern  would  use  those 
terminals. 

Mr.  Harrison:  I  did  my  best  to  bring  that  about,  Senator,  to  avoid 
the  duplication  of  capital,  to  have  one  terminal  open  to  everyone.  I  an- 
nounced to  Mr.  Potter  last  winter  that  we  were  going  to  build  our 
terminal,  but  he  came  back  and  urged  that  we  use  his  terminal ;  that  he 
would  make  fair  arrangements  for  the  use  of  it  for  our  shipments.  I 
submitted  that  suggestion  to  some  of  our  shippers  and  they  declined  to 
accept  it.  The  reason  which  they  gave  was  that  they  were  un- 
willing to  have  their  coal  go  over  a  terminal  controlled  by  anyone  who 
was  also  in  the  coal  business,  and  that  they  believed  that  the  identification 
of  interests  between  Mr.  Potter's  friends  in  the  coal  business  and  his 
friends  in  the  railroad  were  such  that  they  would  not  risk  their  coal  to 
the  same  terminal. 

Senator  Tillman :  You  see  the  Clinchfield  people  own  a  great  deal  of 
coal  of  their  own.  And  they  naturally  want  to  mine  and  sell  their 
coal  rather  than  allow  others  to  do  the  same  thing.  » 

Mr.  Thorn :  That  was  just  what  Mr.  Harrison  was  alluding  to. 

Mr.  Harrison:  Mr.  Wentz  and  Mr.  Newton,  who  are  here,  who  are 
engaged  in  the  coal  business  and  who  want  to  engage  in  this  tidewater 
business  are  unwilling,  for  that  reason,  to  have  their  coal  go  through  a 
terminal  controlled — 

Mr.  Thorn :  That  would  mean  that  the  Southern  Railway,  in  order  to- 
get  any  coal  business  at  all,  must  build  terminals? 


43 

Mr.  Harrison :  It  must  build  terminals,  and  I  have  told  you,  I  have 
pledged  my  word  that  we  will  build  a  terminal  immediately.  We  have 
the  real  estate  bought. 

Senator  Tillman :  I  know  that. 

Mr.  Harrison:  And  we  are  now  completing  an  engineers'  plan  for 
construction  of  the  terminal. 

Senator  Tillman:  I  can  assure  the  people  of  Charleston  that  the 
Southern  is  going  to  build  terminals. 

Mr.  Harrison :  Mr.  Finley  reached  the  conclusion  that  he  would  build 
a  terminal  in  November,  or  just  before  he  died.  He,  however,  did  not 
have  any  money  to  build  it  with.  This  winter  I  made,  as  I  have  stated, 
provision  for  constructing  terminals  for  the  Southern  Railway.  The 
minutes  of  the  meeting  at  which  that  provision  was  made  show  there  was 
an  appropriation  set  aside  of  $500,000  to  be  spent  at  Charleston  on  a 
terminal. 

The  Chairman:  What  was  the  date  of  that? 

Mr.  Harrison:  That  was  February  19,  1914. 

Mr.  Thorn:  In  connection,  Mr.  Chairman,  with  that  statement  of 
Mr.  Harrison  I  will  read  this  into  the  record  at  this  point  (reading)  : 

SOUTHERN  RAILWAY  Co., 
NEW  YORK,  September  19,  1913. 
Mr.  W.  W.  FINLEY, 

President,  Washington,  D.  C. 

DEAR  SIR  :    The  board  of  directors  at  a  meeting  held  today  authorized  the  pur- 
chase from  Magnolia  Cemetery  of  about  120  acres  of  land,  with  4,000  feet  of  river 
front  at  Charleston,  S.  C.,  for  development  of  coal-handling  facilities,  at  estimated 
cost  of  $100,000.     Your  file  on  this  subject  is  returned  herewith. 
Yours    very  truly, 

R.  D.  LANKFORD, 
V ice-President  and  Secretary. 

On  the  next  day  I  read  this  memorandum  (reading)  : 

WASHINGTON,  September  24,  1913. 

(Office  memorandum:    Purchase  of  property  in  Charleston,  S.  C.) 
In  a  conference  with  Vice-President  Spencer  I  authorized  him  to  conclude  the 
purchase  of  this  property  in  accordance  with  the  authority  of  the  board. 

W.  W,   F. 

I  would  also  like  to  introduce  the  act  of  the  Assembly  of  South  Caro- 
lina, passed  at  its  last  session,  held  in  January,  at  which  the  Magnoliat 
Cemetery  Co.,  in  the  January  of  this  year,  obtained  an  act  which  autho- 
rized them  to  sell  the  land  for  other  than  cemetery  purposes.  The  pur- 
chase of  the  land  waited  on  that  act,  that  act  being  necessary. 

We  went  to  try  to  buy  the  property,  and  we  found  out  this  difficulty 
in  getting  the  title.  Thereupon  the  Magnolia  Cemetery  Co.  went  to  the 
South  Carolina  Legislature  and  secured  an  act  authorizing  them  to  make 
the  sale,  and  when  that  was  done  the  sale  was  consummated. 

The  Chairman :  Are  they  going  to  build  these  terminals  in  the 
cemetery  ? 

Senator  Tillman :  No ;  on  the  land  that  belonged  to  the  cemetery. 

Mr.  Harrison:  Senator,  it  has  been  my  experience  that  if  ever  you 


44 

are  in  doubt  as  to  where  a  cemetery  it,  just  start  a  railroad  engineer  to 
work  and  you  will  find  it.  They  will  find  a  cemetery  every  time  in  run- 
ning £  line  for  a  railroad. 

Now,  to  conclude  that  statement,  Mr.  Chairman,  I  have  shown  that 
to  get  an  adequate  railroad  to  move  coal  from  Appalachia  to  Charles- 
ton is  going  to  cost  $11,500,000.  We  are  willing  to  make  an  experi- 
ment with  our  present  railroad  to  see  what  can  be  done  with  moving 
coal — what  trade  can  be  built  up.  We  are  willing  to  provide  a 
terminal  and  we  have  the  land  on  which  to  provide  a  terminal.  We 
have  an  appropriation  with  which  to  build  a  terminal ;  we  have  the  money 
in  the  bank,  and  we  are  going  to  do  it. 

Senator  Tillman:  You  have  the  $11,000,000? 

Mr.  Harrison:  No;  we  have  the  money  to  build  a  terminal. 

Senator  Chilton :  He  says  he  is  going  to  use  his  present  line  to  make 
the  demonstration. 

Senator  Tillman:  He  has  already  said,  I  think,  that  the  present  line 
was  wholly  inadequate,  owing  to  the  grades,  etc. 

Mr.  Thorn :  Let  me  clear  that  up.  Mr.  Harrison,  your  reference  to 
that  matter  related  to  how  cheaply  and  how  economically  the  traffic  could 
be  hauled  over  our  present  railroad,  as  I  understand  it? 

Mr.  Harrison:  Yes. 

Mr.  Thorn :  And  you  have  stated  that,  notwithstanding  the  excessive 
cost  that  our  present  physical  conditions  will  entail,  we  will  haul  the  coal 
there  at  $1.40  a  ton  for  export,  and  that  we  will  construct,  as  a  part  of 
our  transportation  facilities,  at  Charleston,  this  coal  pier  to  which  you 
have  alluded ;  that  you  are  going  to  do  that  for  the  purpose  of  giving  it  a 
full  trial  to  determine  whether  or  not  there  can  be  a  coal-export  business 
built  up  through  the  port  of  Charleston  ? 

Mr.  Harrison:  Yes,  sir. 

Senator  Tillman:  That  is,  regardless  of  the  Clinchfield  business? 

Mr.  Thorn:  Yes,  sir. 

Senator  Tillman :  You  are  going  to  have  one  unit,  then,  of  a  South- 
ern coal  terminal? 

Mr.  Thorn :  We  are  going  to  have  a  coal  pier  there  built  by  the 
Southern  in  addition  to  whatever  pier  the  Clinchfield  people  build  there, 
or  the  Holston  Corporation.  We  have  tried,  Senator,  as  Mr.  Harrison 
has  explained,  to  avoid  the  duplication  of  facilities  at  that  point.  In  your 
absence  on  Friday  I  read  a  letter  from  Mr.  Finley  to  Mr.  Potter,  dated 
July  1,  1913,  in  which  he  took  the  position  that  whatever  facilities  were 
opened  there  must  be  open  to  every  shipper  that  wanted  to  use  them  on 
our  lines,  and  that  we  could  not  go  into  an  arrangement  which  would 
make  it  necessary  for  any  shipper  to  make  a  private  contract  with'  a 
private  corporation  to  get  the  facilities ;  that  we  must  pursue  the  policy 
of  having  those  facilities  open  to  all.  That  letter  was  read  here. 

Now,  the  matter  of  the  purchase  of  this  land  and  the  appropriation, 
of  the  money  which  Mr.  Harrison  speaks  of,  and  of  the  arrangement  for 
constructing  our  own  piers,  is  in  pursuance  of  our  policy  of  having  a 
pier  there  which  any  shipper  on  our  lines  can  use — 

Senator  Tillman:  Regardless  of  what  the  Clinchfield  does? 

Mr.  Thorn:  Regardless  of  what  the  Clinchfield  does.  And  that  has 
not  been  a  recent  development,  but  has  been,  as  I  say,  going  on  in  the 


45 

way  of  debate  for  perhaps  a  year  prior  to  July  1,  1913,  or  longer  than 
that,  and  culminated  last  summer  in  that  determination.  It  has  not  been 
the  outgrowth  of  any  investigation  or  anything  else.  It  has  been  the 
deliberate  purpose  which  has  been  adopted  by  the  Southern  Railway  Co. 
to  meet  this  situation. 

Mr.  Harrison,  you  have  heard  my  statement.  Is  that  a  fair  state- 
ment? 

Mr.  Harrison:  That  is  a  fair  statement;  I  indorse  it. 

Mr.  Thorn :  Will  you  explain,  in  connection  with  what  you  have  said, 
through  what  means  you  purchased  this  land  at  Charleston? 

Mr.  Harrison:  The  land  was  purchased  by  the  Stonega  Co.  Mr. 
Wentz,  president  of  that  company,  has  been  one  of  the  promoters  of  the 
construction  of  a  coal  terminal  at  Charleston.  It  was  a  year  ago  or  more 
that  he  agreed  with  Mr.  Finley  to  find  a  site  and  to  buy  a  site  at  Charles- 
ton on  which  a  coal  terminal  might  be  built.  Mr.  Wentz  went  to  Charles- 
ton, and  later,  as  I  am  advised,  in  order  that  he  might  be  perfectly  free 
and  not  be  considered  as  representing  the  Southern  Railway  in  his  nego- 
tiations, he  notified  Mr.  Spencer,  one  of  our  vice-presidents,  that  he  was 
acting  for  his  own  account.  We,  however,  considered  that  we  would 
always  have  the  opportunity  to  buy  that  land  from  him  if  he  would  sell 
it.  We  did  eventually  acquire  it,  and  the  title  was  perfected  through  this 
act  of  the  legislature ;  and  when  the  title  was  perfected  we  took  the  land 
over  and  reimbursed  Mr.  Wentz  for  the  purchase  of  it. 

Mr.  Thorn:  Was  the  taking  over  of  that  land  from  Mr.  Wentz  in 
pursuance  of  a  purpose  which  had  been  formed  at  the  time  Mr.  Wentz 
was  asked  to  undertake  the  purchase? 

Mr.  Harrison:  My  understanding  from  Mr.  Finley  was  that  at  the 
time  he  asked  Mr.  Wentz  to  attempt  this  service  he  said  it  was  necessary 
to  build  a  coal  terminal  at  Charleston,  he  did  not  then  know  where  the 
money  was  coming  from  to  do  it,  but  he  was  willing  to  take  the  first  step 
so  far  as  acquiring  the  land  was  concerned. 

Mr.  Thorn:  I  have  a  memorandum  before  me  which  has  just  been 
handed  to  me  by  Mr.  Wentz  (reading)  : 

MEMORANDUM. 

April  10,  1913,  Mr.  Samuel  Dixon,  Dr.  John  S.  Wentz,  and  D.  B.  Wentz  met 
Mr.  W.  W.  Finley,  president  Southern  Railway  Company,  at  his  offices  in  New 
York,  to  discuss  exporting  coal  from  Charleston,  S.  C. 

April  24,  Mr.  W.  W.  Finley  wrote  D.  B.  Wentz  from  the  Waldorf  in  New 
York,  advising  that  he  had  the  question  in  mind  and  was  active  in  his  invest- 
tigations  in  connection  with  it. 

About  May  23,  D.  B.  Wentz  met  H.  B.  Spencer,  vice  president  of  the  Southern 
Railway,  on  Pennsylvania  train  between  Philadelphia  and  Baltimore  and  dis- 
cussed question  of  constructing  coal  docks  at  Charleston. 

May  30,  D.  B.  Wentz  arrived  in  Charleston  and  began  inspection  of  suggested 
properties  for  dock  construction.  (See  letter  of  D.  B.  Wentz  to  Mr.  H.  B. 
Spencer  from  Charleston,  dated  June  1,  1913.) 

D.  B.  Wentz,  again  visited  Charleston,  Thursday,  June  19,  to  negotiate  with 
Messrs.  Montague  &  Durant,  and  on  June  20  options  from  the  E.  P.  Burton 
Lumber  Company  and  the  Filbin  Corporation  for  property  on  Cooper  River 
were  secured,  which  options  expired  September  20,  1913. 

July  3,  1913,  the  Magnolia  Cemetery  gave  the  Stonega  Company  an  option  on 
114  acres  of  land  situated  on  Cooper  River,  consideration  $100,000,  $1,000  ©f 
which  was  paid  on  account. 


46 

October  3,  1913,  Stonega  Company  accepted  the  option  and  entered  into  an 
agreement  with  Magnolia  Cemetery,  which  provided  that  the  charter  of  Mag- 
nolia Cemetery  should  be  amended  by  the  legislature  so  as  to  enable  it  to  con- 
vey land  for  purposes  other  than  burial,  and  further  provided  that  when  the 
charter  was  so  amended  the  Magnolia  Cemetery  would  give  a  deed  of  convey- 
ance to  the  Stonega  Company. 

The  Legislature  of  South  Carolina  amended  the  charter  of  Magnolia  Ceme- 
tery February  10,  1914,  and  on  March  16,  1914,  Magnolia  Cemetery  conveyed 
the  114-acre  tract  to  the  Stonega  Company. 

On  April  2,  1914,  the  Stonega  Company  entered  into  a  deed  of  trust  to  sell 
the  land. 

That  is  a  chronological  history  of  what  was  done  in  respect  to 
securing  the  site  for  this  facility  at  Charleston. 

The  Chairman:  By  whom  was  that  memorandum  prepared? 

Mr.  Thorn:  By  Mr.  Wentz  here,  and  handed  to  me  right  here.  He 
will  be  on  the  stand  and  will  testify  about  that. 

Have  you  completed  your  statement,  Mr.  Harrison? 

Mr.  Harrison:  I  have  completed  it;  yes. 

Senator  Tillman :  Before  you  leave  that  coal  situation,  Mr.  Harrison, 
I  suppose  you  know  if  anybody  knows  when  the  Southern  Railway  Co. 
will  let  the  contract  for  this  coal  terminal  ? 

Mr.  Harrison :  We  have  just  had  the  first  reports,  Senator,  from  the 
engineers  who  we  sent  down  there  to  make  studies  of  this  thing.  It  is  a 
question  merely  of  engineering  now. 

Senator  Tillman :  Can  you  tell  us  within  a  year  ? 

Mr.  Harrison :  Yes,  sir ;  I  can  guess  within  three  months. 

Senator  Tillman:  When  it  will  be  finished? 

Mr.  Harrison:  It  will  take  about  a  year.  The  engineers  say  they 
may  do  it  in  nine  months. 

Senator  Tillman:  Have  you  any  idea  when  the  Clinchfield  people 
will  get  through  with  that  pier? 

Mr.  Harrison:  I  do  not  know. 

Mr.  Thorn :  Mr.  Harrison,  there  is  no  question  about  the  purpose  of 
the  Southern  Railway  Co.  to  go  on  actively  with  the  establishment  of  this 
pier  at  Charleston,  is  there? 

Mr.  Harrison:  None,  whatever.  There  was  doubt  on  that  subject 
up  to  the  time  of  my  last  conference  with  Mr.  Wentz,  which,  I  believe, 
was  in  May,  or,  perhaps,  in  June,  when  he  made  the  objection,  which  I 
have  stated,  to  using  Mr.  Potter's  facilities;  and  I  then  abandoned  the 
expectation  of  being  able  to  avoid  the  duplication  of  capital  expense. 

Mr.  Thorn :  In  other  words,  Mr.  Harrison,  you  had  hoped  to  be  able 
to  make  some  arrangement  that  would  be  satisfactory  to  the  shippers  of 
the  Virginia  &  Southwestern  by  which  you  could  utilize  the  pier  construc- 
tion that  was  to  be  made  by  other  people? 

Mr.  Harrison:  It  was  in  that  hope  that  I  made  no  announcement  of 
the  appropriation  or  policy  with  regard  to  building  that  terminal  until 
now. 

Mr.  Thorn:  But- there  has  been  no  doubt  for  more  than  a  year  that 
the  Virginia  &  Southwestern  operators  would  be  accommodated  there 
through  these  facilities  to  be  established  by  Mr.  Potter's  company  or  by 
facilities  to  be  established  by  the  Southern? 


47 

Mr.  Harrison:  We  were  committed  to  the  proposition  that  if  dock 
terminals  were  not  provided  by  somebody  else  they  would  be  by  us. 

Mr.  Thorn :  And  it  has  only  been  the  working  out  of  that  question, 
whether  or  not  the  duplication  of  expense  could  be  saved,  that  has  de- 
layed this  announcement  until  now? 

Mr.  Harrison:  Yes. 

Senator  Tillman:  Right  there,  Mr.  Harrison,  if  you  do  not  mind 
answering;  if  you  do,  do  not  answer  it — the  Clinchfield  people  own  lots 
•of  coal  of  their  own,  and  they  own  the  railroad,  too.  They  have  now 
reached,  or  are  about  to  reach,  tidewater  at  Charleston.  If  the  other 
coal  operators  in  that  region  are  to  reach  tidewater,  too,  the  Southern 
Railway  will  not  only  be  compelled  to  develop  or  build  coal  terminals  but 
they  will  have  to  spend  this  $11,000,000  also  to  compete?  You  can  not 
haul  coal  in  competition  with  the  Clinchfield  people  over  a  railroad  that 
is  inadequate — 

Mr.  Harrison:  Oh,  yes;  we  can.  I  think  we  have  hauled  coal  in 
competition  with  the  Clinchfield  people  for  a  good  many  years,  Senator, 
on  what  we  have  now. 

Senator  Tillman:  It  will  depend  entirely  on  the  amount  of  export 
business  built  up  at  Charleston  whether  you  will  feel  warranted  in  ex- 
pending the  necessary  money  to  reduce  grades  and  straighten  curves  in 
order  to  make  your  railroad  haul  coal  as  cheaply  as  the  Clinchfield  people? 

Mr.  Harrison:  Well,  as  cheaply  as  the  Norfolk  &  Western.  I  think 
we  do  haul  coal  now  as  cheaply  as  the  Clinchfield  people  do  on  their  line 
"between  Speer's  Ferry  and  Charleston. 

Senator  Chilton:  You  say  you  gave  a  rate  of  $1.40  to  the  seaboard? 

Mr.  Harrison:  Yes,  sir. 

Senator  Chilton :  That  is  the  C.  &  O.  rate? 

Mr.  Harrison:  To  Norfolk;  yes. 

Mr.  Thorn:  What  we  propose  to  do,  in  other  words,  is  to  put  coal 
in  Charleston,  with  a  coal  terminal,  as  cheaply  to  the  shipper  from  the  Ap- 
palachian district,  including  every  mine,  on  the  Virginia  &  Southwestern 
road,  as  the  Norfolk  &  Western  hauls  its  Pocahontas  coal  to  Norfolk. 

Mr.  Harrison :  Yes,  sir. 

Senator  Tillman :  In  other  words,  you  are  going  to  compete  for  the 
business  honestly  and  earnestly? 

Mr.  Thorn :  Yes,  sir. 

The  Chairman:  I  think  Mr.  Harrison  has  answered  that. 

Mr.  Thorn:  And  that  has  not  been  a  sudden  purpose,  but  it  has 
been  the  outgrowth  of  the  conditions  and  the  negotiations  to  which  you 
have  made  reference? 

Mr.  Harrison :  The  construction  of  the  Panama  Canal  has  stirred  us 
up  considerably  about  that. 

Senator  Chilton :  If  you  go  in  there  to  get  it  at  all  you  have  got  to 
go  in  there  on  conditions  by  which  you  have  to  compete. 

Mr.  Thom :  I  would  like  for  you  to  develop  that  statement  about  the 
Panama  Canal. 

Mr.  Harrison :  While  this  discussion  was  going  on  the  Panama  Canal 
was  being-  built,  and  we  have  alwavs  seen  the  possibilitv  of  the  relations 
between  South  Atlantic  ports  via  the  Panama  Canal  with  the  west  coast 
of  South  America,  and  it  has  encouraged  some  of  us  to  believe  this  ex- 


48 

porting  of  coal  might  be  made  profitable  where  before  that  we  did  not 
believe  it  could  be  made  profitable. 

Mr.  Thorn :  The  Panama  Canal  has  influenced  the  judgment  of  the 
management  of  the  Southern  Railway  Co.  in  respect  to  whether  or  not 
this  was  a  justifiable  undertaking? 

Mr.  Harrison:  Yes,  sir. 

Senator  Chilton:  You  speak  of  the  export  of  coal. 

Mr.  Harrison :  Export  coal  is  any  coal  that  goes  to  tidewater. 

Mr.  Thorn:  Mr.  Harrison,  has  the  Southern  Railway  Co.  at  any 
time  had  any  intention  of  shutting  off  any  shipper  on  its  lines  with  respect 
to  coal  to  any  territory? 

Mr.  Harrison:  Emphatically  it  has  not. 

Mr.  Thorn :  You  spoke  of  Mr.  McHarg  being  for  a  time,  and  until 
the  railroad  was  paid  for,  the  continuing  president  of  the  Virginia  £ 
Southwestern  Railroad.  Did  he,  when  he  surrendered  the  control  of 
that  property,  seek  in  any  wiay  to  control  the  policy  of  the  Southern 
Railway  or  the  Virginia  &  Southwestern  Railway  with  reference  to  coal 
rates  or  transportation  of  coal? 

Mr.  Harrison:  I  do  not  think  he  did.  He  became  a  coal  shipper,, 
and  he  has  been  an  advocate  of  his  own  coal  shipments.  Whether  he 
sought  to  do  so,  or  not,  it  is  a  fact  that  he  did  not  control  the  policy  of  the 
Southern  Railway. 

Mr.  Thorn :  I  was  coming  to  that.  Has  he  in  any  way  controlled  or 
influenced  the  policy  of  the  Southern  Railway  or  the  Virginia  &  South- 
western Railroad? 

Mr.  Harrison :  He  has  not.  When  we  paid  him  out  we  were  finished 
with  him,  so  far  as  control  of  any  railroad  is  concerned. 

Mr.  Thorn:  In  connection  with  the  amount  of  money  that  has  been 
spent  on  the  Virginia  &  Southwestern  and  the  Southern  Railway,  has 
there  been  any  substantial  amount  put  in  coal  equipment  for  the  purpose 
of  hauling  coal  out  of  that  Virginia  &  Southwestern  district? 

Mr.  Harrison:  Yes;  a  very  considerable  sum. 

Mr.  Thom:  I  understand  it  has  been  published  in  the  newspapers 
that  this  policy  of  the  Southern  in  respect  to  establishing  facilities  for 
transshipment  of  coal  at  Charleston  has  been  the  outgrowth  of  this  Sen- 
ate investigation  and  has  been  adopted  since  the  Senate  investigation  was 
inaugurated.  Will  you  be  kind  enough  to  state  the  facts  abort  that? 

Mr.  Harrison :  It  is  not  the  fact.  As  has  been  shown  in  the  last 
half  hour,  the  policy  was  a  long-matured  one.  It  was  reached  as  a  con- 
clusion when  Mr.  Wentz  was  invited  to  buy  the  land,  and  it  was,  as  you 
might  say,  consummated  when  provision  was  made  for  the  money  to 
develop  the  terminal  in  February  of  this  year,  and  the  actual  determina- 
tion to  go  ahead  in  spite  of  what  the  Clinchfield  was  doing  was  reached 
quite  recently. 


Photomount 
Pamphlet 

Binder 
Gay  lord  Bros.  Inc. 

Makers 

Stockton,  Calif. 
PAT.  JAN.  21.  1908 


718981 


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